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IRS Announces Tax Relief for West Virginia Taxpayers Impacted by Severe Storms

06/10/24

The IRS has issued tax relief for West Virginia residents and businesses that were impacted by severe storms, tornadoes, straight-line ...

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The IRS has announced that residents and business located in Boone, Brooke, Cabell, Fayette, Hancock, Kanawha, Lincoln, Marshall, Nicholas, Ohio, Preston, Putnam, Tyler, Wayne, and Wetzel counties in West Virginia are eligible for extensions because of the severe storms that occurred on April 2, 2024. The tax relief pertains to deadlines that occurred from April 2nd to November 1st, 2024. As a result, businesses and residents have until November 1st to pay and file any taxes that were originally due during this period.

The tax relief pertaining specifically to a taxpayer engaged in a 1031 Exchange is as follows:

“Affected Taxpayers”, those who reside or businesses whose principal place of business is in the Covered Disaster Area, are entitled to relief regardless of where the Replacement or Relinquished Properties are located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief.

Option One: General Postponement under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date.

Option Two: Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the relinquished property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the relinquished property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other taxpayers).  Visit for full details on the tax relief from the IRS. The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

<a href="https://www.irs.gov/newsroom/irs-west-virginia-storm-victims-qualify-fo…; rel="noreferrer noopener" target="_blank">Visit for full details on the tax relief from the IRS.</a>

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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IRS Announces Tax Relief for West Virginia Taxpayers Impacted by Severe Storms

06/10/24

The IRS has issued tax relief for West Virginia residents and businesses that were impacted by severe storms, tornadoes, straight-line ...

IRS Announces Tax Relief for Kentucky Taxpayers Impacted by Severe Storms

06/10/24

The IRS has issued tax relief for Kentucky residents and businesses that were impacted by severe storms, tornadoes, straight-line winds, ...

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The IRS has announced that residents and business located in Boyd, Carter, Fayette, Greenup, Henry, Jefferson, Jessamine, Mason, Oldham, Union, and Whitley counties in Kentucky are eligible for extensions because of the severe storms that occurred on April 2, 2024. The tax relief pertains to deadlines that occurred from April 2nd to November 1st, 2024. As a result, businesses and residents have until November 1st to pay and file any taxes that were originally due during this period.

The tax relief pertaining specifically to a taxpayer engaged in a 1031 Exchange is as follows:

“Affected Taxpayers”, those who reside or businesses whose principal place of business is in the Covered Disaster Area, are entitled to relief regardless of where the Replacement or Relinquished Properties are located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief.

Option One: General Postponement under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date.

Option Two: Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the relinquished property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the relinquished property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other taxpayers).

<a href="https://www.irs.gov/newsroom/irs-kentucky-storm-victims-qualify-for-tax…; rel="noreferrer noopener" target="_blank">Visit for full details on the tax relief from the IRS.</a>

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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IRS Announces Tax Relief for Kentucky Taxpayers Impacted by Severe Storms

06/10/24

The IRS has issued tax relief for Kentucky residents and businesses that were impacted by severe storms, tornadoes, straight-line winds, ...

Options for Inherited Property Including a 1031 Exchange

06/06/24

When dealing with inherited real estate, questions often arise as to what the heirs should do with the property, and ...

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We often get questions about what happens when Grandpa dies, and his heirs inherit his investment real estate, including whether the heirs should sell the real estate as part of a 1031 Exchange and whether there are other tax implications. This blog will address many of these questions.

<h2 aria-level="2" paraeid="{454c741d-9ccc-49c3-9cb1-70b66da3f8a2}{189}" paraid="1064159122" role="heading">Potential for Step-Up in Basis </h2>

Suppose Grandpa has investment real estate that he purchased for $200,000, with an adjusted basis of $100,000, and a current fair market value of $500,000. Prior to death, Grandpa could sell this property as part of a 1031 Exchange and defer the Capital Gains taxes on his investment. If he were to sell it outright, without the benefit of a 1031 Exchange, he would incur a Depreciation Recapture Tax of 25% on the $100,000 of depreciation that he has taken, and a Capital Gains tax hit of 20% on the $300,000 of gain, costing him $85,000 in federal taxes. Depending on where Grandpa lives, there could also be State Taxes to consider (as high as 13.3% in California). But if Grandpa were to die today, with the $500,000 fair market value, his heirs would inherit the property with a “step-up in basis.”

The step-up in basis is a provision in the current federal tax law that allows heirs to inherit the property at the fair market value as of the date of death. In this case, the current basis of $100,000 is adjusted – or “stepped-up” – from the previous basis to the $500,000 fair market valuation at the time of Grandpa’s death. Thus, Grandpa and his heirs have deferred capital gains and depreciation recapture taxes indefinitely.

If Grandpa has a will, the property will pass to his heirs according to his plans as articulated in the will. If Grandpa does not have a will, or if his will is determined to be invalid, his estate will have to go through the process of probate. A court will appoint an administrator of Grandpa’s estate. The administrator will locate Grandpa’s heirs, inventory his estate, and then distribute the various assets according to state law.

<h2 aria-level="2" paraeid="{454c741d-9ccc-49c3-9cb1-70b66da3f8a2}{213}" paraid="593570073" role="heading">Effects of Inherited Property on Heirs </h2>

When heirs inherit property, there is more to consider than just the fact that they received property at no initial cost. This is where Estate and Inheritance taxes come into play.

<h3 aria-level="3" paraeid="{454c741d-9ccc-49c3-9cb1-70b66da3f8a2}{225}" paraid="47242186" role="heading">Estate and Inheritance Tax </h3>

At the federal level, there is an Estate Tax on assets over $13.61 million. Thus, if Grandpa’s total estate is valued at or below that threshold, there is no federal Estate Tax owed. Twelve states, plus the District of Columbia impose Estate Taxes, and another six states impose Inheritance Taxes. (Estate Taxes are paid by the estate, on the value of the estate. The heirs pay Inheritance Taxes, on the value of what they receive.) As with the federal Estate Taxes, state level Estate Taxes would be imposed on Grandpa’s estate above certain thresholds. For example, Oregon begins to impose its Estate Tax at $1 million, and Connecticut starts at $12.92 million. As for the states with Inheritance Taxes, all of them exempt spouses from having to pay Inheritance Taxes, and some fully or partially exempt children or parents. However, in Pennsylvania, for example, Grandpa’s children or grandchildren would be required to pay 4.5% Inheritance Tax on the value of what they receive.

<h3 aria-level="3" paraeid="{454c741d-9ccc-49c3-9cb1-70b66da3f8a2}{239}" paraid="1098640191" role="heading">Example of Potential Financial Obligations with Inherited Property </h3>

If Grandpa has a will and leaves his investment real estate to his Pennsylvania grandchild, that grandchild would be inheriting $500,000 of investment real estate, and their Pennsylvania Inheritance Tax burden would be $22,500. The grandchild could sell the real estate and use the cash proceeds to pay this Inheritance Tax obligation. If the grandchild were to sell the property to pay the Inheritance Tax obligations, there likely is no current capital gains implication since the sale will occur shortly after the inheritance at the stepped-up basis.

But the grandchild could also pay that tax obligation with personal funds, and then maintain the property as an ongoing investment for years to come. If they choose this option, and later sell the property for $750,000, their capital gain is $250,000 ($750,000 - $500,000 = $250,000). The practical effect is that the capital gain between Grandpa’s adjusted basis and the grandchild’s inheritance of that property was eliminated by the step-up in basis. Without it, the grandchild would have had a significantly higher taxable gain after the sale ($750,000 - $100,000 = $650,000).

<h2 aria-level="2" paraeid="{e481fd99-db13-4fcc-b174-95acc27469e5}{2}" paraid="2052393771" role="heading">Inherited Property: Keep or Sell?  </h2>

Heirs of inherited property must determine what they wish to do with the property long-term. If they choose to hold onto it, they will incur the typical costs of ownership of real estate, including property taxes, insurance, maintenance, etc.

One option would be to keep it as a rental property, using the income to offset expenses, and perhaps derive additional passive income. This, of course, means that they now must undertake all of the activities of a landlord, perhaps in a community that is inconvenient. If they maintain the property as a rental, they could also benefit from potential additional appreciation over the years. Historically, the national average appreciation rate is 3% to 5% for residential real estate, though this is not guaranteed. In fact, during the 2007 market correction, the average home in America saw a 13% decrease in value.

After holding the property as a rental for a few years, the heir could sell this property as part of a properly structured 1031 Exchange, perhaps to relocate the property to a more convenient location, reinvest in a different asset class, or even consider a Delaware Statutory Trust if they do not wish to be an active landlord.

In this example, Grandpa included his investment real estate in his overall estate planning strategy, passing an appreciated asset to a grandchild. Investors are encouraged to discuss their specific tax and estate planning needs with their financial planner, attorney, and accountant.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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Options for Inherited Property Including a 1031 Exchange

06/06/24

When dealing with inherited real estate, questions often arise as to what the heirs should do with the property, and ...

1031 Exchanges Involving Foreign Property

05/31/24

Are 1031 Exchanges only available to domestic real property within the United States? Can a United States taxpayer that owns real ...

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1031 Exchanges enable Exchangers to defer Capital Gains taxes by reinvesting the proceeds from selling an investment or business use property into another. It's important to understand the distinct rules for domestic and foreign properties: you can exchange a U.S. property for another U.S. property or a foreign property for another foreign property, but you cannot exchange a U.S. property for a foreign property, or visa versa. Exchangers should carefully plan and educate themselves on the rules and regulations of 1031 Exchanges to ensure they will retain tax deferral benefits.

<h2 paraeid="{f66967bf-b3ea-48ac-b77f-cb88de2561f4}{233}" paraid="607981180">Do US Taxes Apply to Foreign Real Estate?</h2>

Prior to discussing the considerations for 1031 Exchanges involving foreign property, it is important to understand how United States taxes apply to foreign property. If a US taxpayer, or taxpaying entity, owes property outside of the United States, the property or income generated from the property is treated largely the same as domestic property, including:

<ul>
<li paraeid="{f66967bf-b3ea-48ac-b77f-cb88de2561f4}{233}" paraid="607981180">Profits from the sale of property for a profit those proceeds would be subject to taxation</li>
<li paraeid="{f66967bf-b3ea-48ac-b77f-cb88de2561f4}{233}" paraid="607981180">Income generated from the ownership or operation of foreign real estate is taxable income </li>
<li paraeid="{f66967bf-b3ea-48ac-b77f-cb88de2561f4}{233}" paraid="607981180">Property owners can deduct qualifying expenses for foreign properties to lower their taxable income</li>
<li paraeid="{f66967bf-b3ea-48ac-b77f-cb88de2561f4}{233}" paraid="607981180">Property is eligible for depreciation, although foreign commercial property is depreciated over 40 years and foreign residential property is depreciated over 30 years, versus the 39 years and 27.5 years respectively for domestic properties</li>
</ul>

In summary, foreign property owned by a taxpaying citizen of the United States is essentially treated the same as domestic property in regard to annual taxes.

<h2 paraeid="{f66967bf-b3ea-48ac-b77f-cb88de2561f4}{233}" paraid="607981180">Do 1031 Exchanges Apply to Property Outside the United States? </h2>

In a 1031 Exchange, both the Relinquished and Replacement Properties must be like-kind. <a href="https://www.accruit.com/blog/understanding-like-kind-requirement-1031-e…; rel="noreferrer noopener" target="_blank">Like-kind</a> means that any real estate property held for use in a trade or business or for investment is like-kind to any other real estate property held for use in a trade or business or for investment, i.e. they do not need to be same kind. For example, a multi-family property can be exchanged for an office building. The historical reference to like-kind was much more relevant prior to 2018 when various types of personal and intangible property was often exchanged.  Since that time, only real property can be exchanged.

This requirement establishes that properties located within the continental United States are considered like-kind other continental U.S. properties.  For example, properties in Puerto Rico are considered outside of the U.S. However, properties located in the Virgin Islands may be treated as like-kind to domestic property under certain circumstances. There is also some authority that properties in Guam or the Northern Mariana Islands may qualify for a 1031 exchange for U.S. property. What is clear within the Regulations is that foreign property is considered like-kind to other foreign property.

Relinquished and Replacement Properties in a 1031 Exchange involved must be domestic or foreign, there cannot be a mix. In the United States, properties can only be exchanged for others within the United States. Foreign properties can be exchanged for other properties in any country, as they are all foreign. Exchanges between different foreign countries are valid, as the qualifying consideration is that they are both foreign to the U.S.

Therefore, Exchangers can exchange foreign property for other foreign property because it is like-kind. Foreign property is not like-kind to domestic property, so a 1031 Exchange is not permissible between domestic and foreign properties.

<h2 paraeid="{f4cc4ab0-2e79-4042-ba9e-656ef2931fe7}{113}" paraid="1738044409">1031 Exchange Scenarios</h2>

When considering a 1031 Exchange, it is important to keep in mind specific rules regarding foreign and domestic properties:

<ol role="list" start="1">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="1" data-font="Calibri Light" data-leveltext="%1." data-list-defn-props="{"335552541":0,"335559685":720,"335559991":360,"469769242":[65533,0],"469777803":"left","469777804":"%1.","469777815":"multilevel"}" data-listid="1" role="listitem">
U.S. Property to U.S. Property: An investor can conduct a like-kind exchange of a U.S. property for another U.S. property. For instance, selling a multi-family rental property in San Francisco, California and exchanging it for an office building in Nashville, Tennessee qualifies for a 1031 exchange. 
</li>
</ol>

<ol role="list" start="2">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Calibri Light" data-leveltext="%1." data-list-defn-props="{"335552541":0,"335559685":720,"335559991":360,"469769242":[65533,0],"469777803":"left","469777804":"%1.","469777815":"multilevel"}" data-listid="1" role="listitem">
Foreign Property to Foreign Property: An investor can exchange a foreign property for another foreign property. With this, both properties must be located outside the U.S. to be considered like-kind.  
</li>
</ol>

<ol role="list" start="3">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Calibri Light" data-leveltext="%1." data-list-defn-props="{"335552541":0,"335559685":720,"335559991":360,"469769242":[65533,0],"469777803":"left","469777804":"%1.","469777815":"multilevel"}" data-listid="1" role="listitem">
U.S. Property to Foreign Property: Exchanging a U.S. property for a foreign property is not permissible under Section 1031 of the Internal Revenue Code. If an investor attempts this, their 1031 Exchange would likely be nullified and they could have to pay associated taxes on the real estate transaction. 
</li>
</ol>

<h2 paraeid="{f4cc4ab0-2e79-4042-ba9e-656ef2931fe7}{198}" paraid="505097873">Does a 1031 Exchange Make Sense for Foreign Property? </h2>

Any sale of foreign property held for investment should undergo the same evaluation as a domestic property being sold. A 1031 exchange of one foreign property for another would result in tax deferral for U.S. tax reporting purposes. Hence, a 1031 Exchange for foreign property would still be beneficial for a property owner even if the country in which the property is not located does not impose its own taxation.

If the foreign country does impose its’ own taxes on the sale, an investor might be afforded some tax liability protection from a duplicate tax levy by the U.S. Foreign Tax Credit. In some cases, an owner of foreign property can take credit on their tax return for some taxes paid in the foreign country and use it to offset United States taxes.

A 1031 Exchange can be as beneficial for owners of foreign real estate as those owning US property. It is important to remember that US real property and foreign real estate are not like-kind to one another for 1031 Exchange purposes. As always, when contemplating a 1031 Exchange it is crucial to involve a Qualified Intermediary (QI) skilled to facilitate all types of 1031 exchanges, including those for foreign real estate holdings.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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1031 Exchanges Involving Foreign Property

05/31/24

Are 1031 Exchanges only available to domestic real property within the United States? Can a United States taxpayer that owns real ...

Accruit Boasts Third-Generation 1031 Exchange Professional

05/29/24

Jillian Rosansky, Senior Account Executive, is a third generation 1031 Exchange professional. Following in her father’s and grandfather's footsteps, Jillian ...

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Jillian Rosansky started at Accruit in June 2023 as a Sales Executive. In less than a year, she was promoted to Senior Account Executive. Jillian engages inbound queries, builds brand awareness through individual and company outreach, and leads many educational presentations, such as Accruit’s monthly webinar, which is coming up on <a href="https://events.teams.microsoft.com/event/30455b35-fb5a-460e-af87-29c2ab…; rel="noreferrer noopener" target="_blank">June 18th</a>. Jillian’s expertise and background are impressive, which can be explained by the fact that she is the third generation of 1031 Exchange professionals in her family. Both Jillian’s father and grandfather have worked in the 1031 Exchange industry for decades, and she is carrying on the family legacy in her own career.

To garner some insight into Jillian’s path to working in the 1031 Exchange industry and her family ties, she was interviewed by Accruit to garner more insight into her background, family, and experience working in 1031.

<h2 aria-level="2" paraeid="{713f00e4-dee3-4803-81ca-8732c07a3f3e}{239}" paraid="1892944955" role="heading">1031 Exchange Bloodlines </h2>

Jillian’s father and grandfather both worked in the 1031 Exchange industry.  Her father runs his own 1031 Exchange company out of California and has been in business for over 25 years. Prior, both her father and grandfather worked together at a different QI for many years. Her grandfather has since retired. Jillian recalls growing up hearing about their work with 1031 exchanges, but at the time didn’t imagine she too would work in the industry. Jillian’s father was kind enough to provide us a quote on his daughter, “I am very proud of Jillian. She is tremendously passionate with everything she does, and I am confident she will be extremely successful. She is wonderful at developing relationships and is a true professional.”

<h2 paraeid="{5d380cd8-5512-4409-a3ed-02102f860093}{10}" paraid="2093550385">The Unlikely 1031 Exchange Specialist  </h2>

One might assume that Jillian had plans to become a 1031 Exchange specialist from childhood given her family roots in the industry, on the contrary Jillian didn’t always have intentions to follow in her father’s footsteps.

Jillian grew up in Orange County, CA and went to the University of Arizona where she graduated with a bachelor’s degree in business marketing. After college, she worked in various sales roles, and she began her career. It was more happen stance than anything that led Jillian to Accruit and into 1031 exchanges.

After some time as an Account Executive in the HR and Payroll Software sector, Jillian was ready to take the next step in her career. Jillian had a mutual connection with one of Accruit’s banking partners, who connected her with Accruit’s CEO, Brent Abrahm. At the time, Accruit was growing their Business Development team, and looking to hire a Sales Executive. Jillian and Brent connected, they discussed her interest in the real estate industry, her background in sales and business development, as well as her knowledge around 1031 exchanges given her family’s legacy in the space.  With Jillian’s acceptance of the Sales Executive role at Accruit, a third generation 1031 exchange professional was created.

<h2 aria-level="2" paraeid="{5d380cd8-5512-4409-a3ed-02102f860093}{60}" paraid="1609036230" role="heading">1031s Run in the Family  </h2>

Now that Jillian has joined her father & grandfather in the 1031 exchange industry, she has a new perspective on all those years at the dinner table hearing about tax deferral.  She stated, “It has been such an incredible opportunity working at Accruit and getting to grow the local, Denver market.”

When asked what her favorite aspects of working in the 1031 Exchange industry are Jillian stated, “Being able to act as a resource for investors and their representatives to reduce their tax burden and help them meet their estate planning goals. I also really enjoy providing CE education to local real estate professionals and hosting local events for investors.”

Jillian has enjoyed growing her career and expanding her own footprint in the 1031 exchange industry. Jillian credits her family as big supporters of her success and they have enjoyed watching her follow in the footsteps of her father and grandfather. While she would be an asset to any Qualified Intermediary, including her father, Jillian is committed to continuing to grow her and Accruit’s presence in Colorado.

Now that Jillian is immersed in the 1031 exchange industry, she has no plans to leave. In the coming years she looks forward to continuing to educate not only Denver, CO, but also greater Rocky Mountain region of real estate professionals and property owners on the benefits of utilizing 1031 Exchanges.

Accruit has been honored to be perhaps the first 1031 exchange Qualified Intermediary with a third generation 1031 exchange specialist. As a Senior Account Executive, Jillian Rosansky has made an immense impact on the both the education Accruit provides to colleagues in the real estate industry, as well as being a key factor in driving business and building connections within Accruit’s home market of Denver, CO. We look forward to seeing more of what Jillian will accomplish in her role, and our company will continue to foster this family legacy built on 1031s.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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Accruit Boasts Third-Generation 1031 Exchange Professional

05/29/24

Jillian Rosansky, Senior Account Executive, is a third generation 1031 Exchange professional. Following in her father’s and grandfather's footsteps, Jillian ...

Lesser Known 1031 Exchanges

05/23/24

This blog discusses lesser-known variations or types of 1031 exchanges such as Partial, Multiple-Property, and Improvement exchanges, defining what they are ...

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In the world of 1031 Exchanges, there are a multitude of circumstances that investors find themselves in with property. While traditional, forward 1031 Exchanges are the most common, situations vary to which more nuanced forms of exchanges may need to be deployed. This blog will cover three types of 1031 exchanges that are not as well-known, including, Partial, Multi-Property, and Improvement Exchanges.

<h2 paraeid="{9ab8c4e4-c60c-4b61-9962-dfffe5d465a5}{10}" paraid="627760004">Partial 1031 Exchange </h2>

What is a Partial 1031 Exchange? Can you do a partial 1031 Exchange? Also known as a split exchange, a partial 1031 Exchange allows the property owner to exchange a portion of the sales proceeds from their Relinquished Property, and keep a portion for themselves, resulting in a partially tax deferred transaction. It is important to understand that tax will need to be paid on any money that is not reinvested into the Replacement Property. For example, if the Relinquished Property was sold for $1 million and the property owner only wants to reinvest $700,000 in a Replacement Property and pocket the $300,000 for a partial 1031 Exchange, they may do so. In keeping the cash, capital gains and other taxes will need to be paid on the $300,000. The $300,000 leftover, un-invested funds are known as <a href="https://www.accruit.com/blog/what-boot-1031-exchange" rel="noreferrer noopener" target="_blank">“boot”</a>.

Some common reasons property owners may want to utilize a partial 1031 Exchange include:

<ul role="list">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="1" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Pay down debt with proceeds 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Cannot find desired Replacement Property that is equal in value 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Use additional equity for non-real estate purchases such as inventory or equipment 
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="4" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" data-listid="1" role="listitem">
Charitable contributions 
</li>
</ul>

While the term may be deceiving, a partial 1031 Exchange is not truly partial, it is indeed a fully executed 1031 exchange utilizing only a portion of the Exchange Funds, thereby giving it its name. Additionally, the tax deferral for a partial exchange is just that, partial, because as mentioned above any Exchange Funds not reinvested into qualifying Replacement Property will create a taxable event for the Exchanger.

<h2 paraeid="{9ab8c4e4-c60c-4b61-9962-dfffe5d465a5}{133}" paraid="1881395951">Multiple Property Exchange </h2>

Can you exchange multiple properties into one property? Can you exchange one property into multiple properties? Yes, and yes. A 1031 Exchange with multiple properties, otherwise known as a Multi-Property Exchange, allows property owners to complete an exchange involving multiple properties. They can exchange one property for multiple Replacement Properties or <a href="/blog/are-multiple-relinquished-properties-allowed" title="Multiple Properties in a 1031 Exchange">relinquish multiple properties</a> and exchange for a single property or exchange multiple relinquished properties for multiple replacement properties. 1031 Exchanges involving multiple properties can be a beneficial move for Exchangers looking to diversify their portfolios.

There has been a rise in Multi-Property Exchanges in states with significant appreciation in real estate values, such as New York, Hawaii, and California. For example, the median listing price of a property in San Diego County was approximately $650,000 in 2016 and reached roughly $1,000,000 in February 2024. In just 8 years, this represents a 54% gain. To defer capital gains tax and increase future profits, an investor who bought a property in 2016 for $650,000 and now has a million-dollar valuation on that property can identify two rental properties in Oregon, which has an average median home price of $502,000, that equate to the $1,000,000 sale of the original property.

Multi-Property Exchanges have gained popularity because investing in multiple properties, provides risk mitigation since all capital isn’t invested into one property, i.e., having all of your eggs in one basket.

<h3 paraeid="{9ab8c4e4-c60c-4b61-9962-dfffe5d465a5}{193}" paraid="458386789">Considerations for Identification in a Multi-Property Exchange </h3>

There are <a href="/blog/what-are-rules-identification-and-receipt-replacement-property-irc-%C2%A71031-tax-deferred-exchange" title="1031 Exchange Identification Rules and Requirements">three rules</a> that must be considered when identifying replacement property in a 1031 exchange, though the exchange only needs to satisfy one of the rules for a successful exchange. When considering Multi-Property Exchanges, the guidelines of these rules become more poignant:

<ol role="list" start="1">
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="1" data-font="Calibri" data-leveltext="%1." data-list-defn-props="{"335552541":0,"335559685":720,"335559991":360,"469769242":[65533,0],"469777803":"left","469777804":"%1.","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
3 Property Rule: Under IRC Section 1031, investors are allowed to identify up to 3 Replacement Properties. Not all properties have to be purchased, but they must be identified within the 45-day identification period.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="2" data-font="Calibri" data-leveltext="%1." data-list-defn-props="{"335552541":0,"335559685":720,"335559991":360,"469769242":[65533,0],"469777803":"left","469777804":"%1.","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
200% Rule: Under this rule, investors are allowed to identify more than three3 Replacement Properties if their aggregate value does not exceed 200% of the sales price of the Relinquished Property.  
</li>
<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Calibri" data-leveltext="%1." data-list-defn-props="{"335552541":0,"335559685":720,"335559991":360,"469769242":[65533,0],"469777803":"left","469777804":"%1.","469777815":"hybridMultilevel"}" data-listid="2" role="listitem">
95% Rule: Under this rule, if investors identify more than three3 Replacement Properties with a combined value of over 200% of the Relinquished Property value, the investor must close on at least 95% of the fair market value of those identified properties.  
</li>
</ol>

<h2 paraeid="{df59407c-7c69-4f7c-9678-cdc3b6aab696}{27}" paraid="221701743">Improvement Exchange </h2>

Can you make improvements to property as part of a 1031 Exchange? Yes, with an <a href="/blog/1031-exchanges-involving-construction-and-property-improvements-dummies" title="Basics of 1031 Exchanges involving Improvements">Improvement Exchange</a> a property owner can utilize proceeds from the sale of the Relinquished Property and use them to make improvements on the Replacement Property. This is usually done when the Replacement Property purchased is of lesser value than the Relinquished Property. Improvements can range from minor repairs or replacements to full-scale construction. Because this is a 1031 Exchange, improvements must be made within the 180-day period, or else any other improvements outside of the timeline could be subjected to taxation, which includes paid labor and materials.

For example, an owner of a commercial property bought the property for $400,000 a few years ago. The same property has appreciated in value and is now worth $1.4 million. The investor decides to sell their property and use the proceeds from that sale to buy another commercial property that needs some improvement. The cost of this new property is $1 million. Opting to not pay taxes on the $400,000 remaining proceeds from the sale of the first property, the investor chooses a 1031 Improvement Exchange, which will allow them to utilize the $400,000 for improvements such as installing central air, new flooring, and repairing the water heater. If the investor can meet all the standard requirements of a 1031 exchange, then they won’t have to pay taxes on the $400,000 until the property is sold.

When utilizing an Improvement Exchange, it is paramount to utilize a seasoned Qualified Intermediary to handle the complexities and requirements of this exchange to defer tax and ensure timelines and documents are in order.

A 1031 Exchange is not one size fits all; there are many options and types of exchanges that property owners can utilize to fit the needs of their particular transaction and investment goals. For 1031 exchanges that involve multiple properties, cash liquidation, or improvements, a 1031 exchange is still possible.

If you have any additional questions about the discussed exchanges or are looking to start one, please reach out to us at (800) 237-1031, email us at <a href="mailto:info@accruit.com" rel="noreferrer noopener" target="_blank">info@accruit.com,</a> or live chat with us on our website.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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Lesser Known 1031 Exchanges

05/23/24

This blog discusses lesser-known variations or types of 1031 exchanges such as Partial, Multiple-Property, and Improvement exchanges, defining what they are ...

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