<p>The Same Taxpayer Requirement is simple in practice when you are dealing with individuals, i.e. John Smith holds title to the Relinquished Property and therefore John Smith must hold title to the acquired Replacement Property as John Smith. The “Same Taxpayer” requirement is less obvious when different types of entities are involved in the 1031 Exchange, such as multi-member LLCs, S-Corps, etc.</p>

<p>Below are answers to some commonly asked questions regarding the “Same Taxpayer” requirement.</p>

<p><strong>Q:</strong> For a husband and wife owned property, if they own property as Tenants-in-Common (TIC) can they take title to the replacement property in just one of their names?</p>

<p><strong>A: </strong>Not unless the spouses live in a community property state where title in just one would still be considered owned by both. In all other situations they should take title in both names.</p>

<p><strong>Q: </strong>If a husband sells an investment property under his name, can he put the title of the Replacement Property in both his and his wife's name?</p>

<p><strong>A: </strong>This is not advisable since it does not meet the Same Taxpayer requirement. However, in a few years when the exchange is “old and cold” it would be acceptable to add the spouse. Q: If 123 Main LLC sells Relinquished Property through a 1031 exchange and 123 Main LLC buys the Replacement Property, but 2 years later they quitclaim it to 456 New LLC (same members) - is there a problem with IRS? A: Two separate LLCs, even with the same members, are not considered the Same Taxpayer. But generally, changes in the ownership structure are possible after a period of two years or more. This is not codified but rather the general belief of commentators.</p>

<p><strong>Q:</strong> If the single member LLC has filed an election at their outset to be taxed as an S-Corp, does that S-Corp election defeat the disregarded entity flexibility so that the owner of the LLC now cannot acquire the Replacement Property in their individual name? Meaning, does that disregarded entity that elected to be taxed as an S-Corp now HAVE to acquire the Replacement Property in the name of their LLC instead of their individual name?</p>

<p><strong>A:</strong> Yes, as to the first question. Generally, holding real estate investments in corporations, including S-Corps, can cause unexpected issues when trying to change the entity and are not considered the best way to hold real estate. An LLC does not cause any such issues. As to the second question, yes. Keep in mind that S-Corp is not disregarded, rather its tax reporting can be done on the shareholder’s personal return. So, any replacement property would have to be owned by S-Corp, either directly or as the single member of a new LLC.</p>

<p><strong>Q:</strong> Can a single member LLC sell the Relinquished Property and a different single member LLC acquire Replacement Property if the member is the same on both LLCs?</p>

<p><strong>A:</strong> That is a good question and one that comes up constantly. The answer is yes, since the single member LLCs are tax disregarded, you would look at the member to determine if the Same Taxpayer requirement is met. This is very common when a taxpayer is selling a property held by one LLC but would prefer eliminating potential claims and matters that would remain should the replacement property be put back into the original LLC. A fresh LLC would prevent that.</p>

<p><strong>Q:</strong> Can a Same Taxpayer add a third party to the acquired Replacement Property, as long as all of the Relinquished Property proceeds end up being used?</p>

<p><strong>A:</strong> Yes and no, it depends upon the structure. If the taxpayer alone owns the relinquished property, a new two person partnership or LLC would not result in maintaining the same taxpayer. However, if the two parties held the ownership as tenants in common, that would be fine. Keep in mind that a tenancy in common in an exchange context should consider a TIC Agreement per Rev. Proc. 2002-22. Also remember that the Same Taxpayer must exchange equal or up in equity and value, so the price of this new property would need to be substantially higher.</p>

<p><strong>Q:</strong> What other different title holding options would continue to constitute the same taxpayer to a person holding title individually?</p>

<p><strong>A: </strong>Any tax disregarded entity. This would include such things as a new single member LLC, Revocable Living Trust, Illinois Land Trust, Tenant-in-Common, or as a beneficiary of a Delaware Statutory Trust (DST).</p>

<p>Read our additional blog, <a href="/blog/same-taxpayer-requirement-1031-tax-deferred-exchange" title="Same Taxpayer Requirement in 1031 Exchange">The Same Taxpayer Requirement in a 1031 Exchange</a>, for a more detailed explanation on the requirements and for specific examples of way to hold title, etc.</p>

<p>OAK BROOK, Ill. — (April 19, 2023) – Inspira Financial, a leading provider of health, wealth, retirement and benefit solutions, today completed the acquisition of Accruit Holdings LLC (Accruit), a leading, independent Qualified Intermediary and technology service provider of real estate 1031 exchanges. The acquisition will broaden Inspira Financial’s diverse solutions by giving institutional and individual clients access to world-class facilitators of all types of 1031 exchanges, one of the most popular, efficient tax deferral strategies when selling and buying real estate property used for business or investment.</p>

<p>For more than 20 years, Inspira Financial has provided access to and custody solutions for alternative asset investments, including real estate. Utilizing Accruit’s patented technology and user-friendly online software solution, Exchange Manager Pro^SM, clients can now take advantage of the tax benefits of leveraging 1031 exchanges and increase cash flow by deferring taxes on gains realized through the sale of qualifying real estate.</p>

<p>“More people are turning to alternative investments like real estate to grow their retirement savings and income, so 1031 exchanges are a valuable tool when managing wealth. We help people leverage their assets to invest in alternatives like real estate, and we’re excited about this step forward, pairing the highest level of administrative expertise and exceptional service with Accruit’s revolutionary 1031 exchange software technology,” Inspira Financial CEO Dan Laszlo said.</p>

<p>“Clients who want to invest in real estate may be able to take advantage of additional tax savings, utilizing boutique-style service across a large volume of exchanges, which sets Accruit apart from other qualified intermediaries. Our company values and path forward are aligned, and we are thrilled to begin working with Accruit's talented industry experts to immediately bring additional value to Inspira Financial's alternative asset clients,” said Erik Beck, Chief Commercial Officer of Inspira Financial.</p>

<p>Accruit, which is headquartered in Denver, has successfully revolutionized the 1031 exchange industry over the last 23 years by operationalizing the exchange of real estate assets through technology and its unique, client-focused service.</p>

<p>“It’s an incredibly exciting time to join Inspira Financial. Our unparalleled 1031 exchange solutions and innovative online platform fit perfectly with its core markets around retirement and wealth solutions,” said Brent Abrahm, President and CEO of Accruit. “Our industry experts look forward to immediately adding value to Inspira Financial’s clients by providing another solution to help maximize their financial wellbeing.”</p>

<p>This acquisition is a part of Inspira Financial’s efforts to expand its health, wealth, retirement and benefit solutions. In 2022, Inspira Financial acquired PayFlex, a provider of health savings accounts (HSAs) and other consumer-directed benefits, to broaden its services and solutions for employers, institutions, and individuals.</p>

<p><strong>About Inspira Financial Company</strong><br />
Inspira Financial solves important business challenges through innovative financial wellness solutions that help people plan, save and invest. With clients holding over $55 billion in assets under custody, we are committed to using our decades of expertise and strong partnership with the financial community to empower employers, advisors and institutions to help people achieve short-term and long-term financial security. <a href="https://inspirafinancial.com/&quot; title="Inspira Financial">Learn more.</a></p>

<p><strong>About Accruit Holdings</strong><br />
Accruit Holdings boasts over 20 years in the 1031 exchange industry. Through our leading independent, national Qualified Intermediary, we provide 1031 exchange services across the U.S. and specialize in all types of exchanges from forward, reverse, build-to-suit/improvement, to specialty "non-safe harbor" reverse exchanges. We revolutionize the industry through our patented 1031 exchange workflow software by offering both SaaS and back-office solutions to the real estate marketplace.&nbsp;</p>

<p><strong>Contact</strong><br />
Emily Burns Perryman<br />
2001 Spring Rd # 700, Oak Brook, IL 60523<br />
mediainquiry@mtrustcompany.com<br />
847-594-0859</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p><em>Updated 1/17/2024.</em></p>

<p>A handful of states have enacted regulations for 1031 Exchange Qualified Intermediaries (QIs), Oregon is one of those states. Learn more about the specific regulations for Qualified Intermediaries processing 1031 Exchanges in Oregon.</p>

<p class="text-align-center"><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/qCEt0ZSaGQA?controls=0&quot; title="YouTube video player" width="560"></iframe></p>

<p>If you are looking to sell real property that was held for investment or business use, you may be interested in learning how you could defer capital gains, depreciation recapture, and new investment income tax on the transaction through a 1031 Exchange. If you are considering a 1031 Exchange, below are ten great questions to ask to gain a general knowledge of the 1031 Exchange process.</p>

<h2>What is a 1031 Exchange?</h2>

<p>A 1031 exchange, also known as a like-kind exchange, is a tax-deferred transaction that allows a real estate investor to sell qualifying property and reinvest the proceeds into other qualifying property without immediately paying capital gains taxes.</p>

<h2>What are the main eligibility requirements for a 1031 Exchange?</h2>

<p>To be eligible for a 1031 exchange, both the Relinquished Property (the property being sold) and the Replacement Property (the property being acquired) must be held for productive use in a trade or business or as an investment. Additionally, the properties must be of like-kind. Generally, all business or investment property is like-kind to one another, regardless of use or character. Further, the taxpayer that sells Relinquished Property must be the one taking ownership to Replacement Property; this is known as the Same Taxpayer Rule.</p>

<h2>What types of properties qualify for a 1031 Exchange?</h2>

<p>Any real estate property held for productive use in a trade or business or as an investment can qualify for a 1031 exchange. This includes residential rental properties, commercial properties, land, and even vacation homes if they adhere to the specific regulations on personal use time frames.</p>

<h2>What are the time constraints for completing a 1031 Exchange?</h2>

<p>The IRS imposes strict time constraints for completing a 1031 exchange. Once the Relinquished Property is sold, the investor has 45 calendar days to identify potential Replacement Properties and 180 calendar days to close on the purchase of one or more of those identified Replacement Properties.</p>

<h2>What is the process for identifying Replacement Properties in a 1031 Exchange?</h2>

<p>The investor must follow certain identification rules when identifying Replacement Property(ies). The three identification rules include: the 3-property rule (identifying up to three properties of any value); the 200% rule (identifying any number of properties as long as the total value of those properties does not exceed 200% of the value of the relinquished property); or if the taxpayer violates both of those rules, then the taxpayer needs to acquire 95% of the value of all identified properties in order to complete their 1031 exchange – 95% rule.</p>

<h2>Can I use a Qualified Intermediary for a 1031 Exchange?</h2>

<p>Yes, a Qualified Intermediary (QI) is typically used to facilitate a 1031 Exchange. The Qualified Intermediary (QI) is a third-party facilitator that through a series of assignments acts as the party to complete the exchange with the Exchanger. Failure to use a QI can result in missteps, causing the disqualification of the exchange and the loss of tax deferral benefits.</p>

<h2>How does the tax deferral work in a 1031 Exchange?</h2>

<p>In a 1031 Exchange, the capital gains taxes that would normally be owed on the sale of the Relinquished Property are deferred until the Replacement Property is sold without the use of a 1031 Exchange. If the investor continues to use 1031 Exchanges for subsequent property sales, the taxes can be deferred indefinitely.</p>

<h2>What happens if I receive cash or other non-like-kind property in a 1031 Exchange?</h2>

<p>If the investor receives any cash or other non-like-kind property as part of the exchange, that portion of the transaction is referred to as “boot” and would be subject to capital gains taxes.</p>

<h2>Are there any risks associated with a 1031 Exchange?</h2>

<p>There are risks associated with not being able to complete a valid 1031 exchange. First is the possibility that the investor may not be able to find a suitable Replacement Property within the required timeframe. Another is that the closing on the Replacement Property purchase won’t occur within the 180-day exchange period. Additionally, there remains the possibility that the investor could identify qualifying replacement property, but then not be able to negotiate the purchase of that property. It is always suggested to consult with your Legal or Tax Advisor before starting a 1031 exchange.</p>

<h2>What are the potential benefits of a 1031 Exchange?</h2>

<p>The potential benefits of a 1031 exchange include the ability to defer capital gains tax, depreciation recapture tax, and net investment income tax, allowing the investor to reinvest more money into a new property. Additionally, 1031 exchanges can be used to consolidate properties, diversify a real estate portfolio, relocate to a different market, or as part of an estate plan.</p>

<p>&nbsp;</p>

<p>Does a 1031 Exchange still sound like a fit for you and your real estate transaction? Reach to our 1031 Exchange team to get the process started today!</p>

<h2>What is a Transfer Tax?</h2>

<p>A transfer tax is a tax imposed upon the sale or other transfer of the ownership of real property from one person or entity to another. Transfer taxes may be imposed by a state, county, or municipality, and are generally not deductible for federal income tax purposes. They can be compared to a sales tax, imposed by the government for the privilege of selling or transferring your property to someone else. In some jurisdictions, they are imposed whether you actually sell the property, or if you simply transfer it to another person or entity, such as by gift.</p>

<p>Not all states impose transfer taxes. Of those that do, tax rates range from 0.01% ($0.01 per $100 of transfer value) to 5% ($5.00 per $100 of transfer value). Some states impose these taxes at a flat rate, regardless of the value of the property, and a few impose a sliding scale with the tax rate increasing for higher value properties.</p>

<p>As mentioned above, some counties and municipalities impose their own transfer taxes, in addition to those imposed by the state. These range from 0.25% ($0.25 per $100 of transfer value) to 5% ($5.00 per $100 of transfer value).</p>

<h2>What is a “Mansion Tax”?</h2>

<p>The term “mansion tax” is a type of transfer tax that applies to taxes imposed on real estate transfers on high-value real estate, typically over a certain value. The tax schemes vary somewhat from state to state:</p>

<ul>
<li>Connecticut – Imposes a higher rate for properties over $800,000. For properties over $2.5 million, there is a 2.25% tax on the portion above that threshold, in addition to the regular transfer tax.<br />
&nbsp;</li>
<li>District of Columbia – Imposes a higher rate for properties over $400,000.<br />
&nbsp;</li>
<li>Hawaii – Has seven different tax rates, imposing incrementally higher rates for properties between $600,000 and $10 million.<br />
&nbsp;</li>
<li>New Jersey – Imposes a higher tax rate for homes over $350,000 plus an additional 1% to the regular transfer tax on homes over $1 million.<br />
&nbsp;</li>
<li>New York – Imposes a higher rate to homes over $1 million. New York City imposes two additional transfer taxes of up to 2.9% on homes over $2 million.<br />
&nbsp;</li>
<li>Vermont – Imposes a higher tax rate on the portion of a home’s value over $100,000.<br />
&nbsp;</li>
<li>Washington – Imposes higher tax rates for homes valued over $500,000, with increases at $1.5 million and $3 million.</li>
</ul>

<p>Recently, Los Angeles voters approved Ordinance ULA creating the so-called ULA Tax. While many people have been referring to this as a “mansion” tax, it applies to the sale or transfer of all real property over the threshold – from single-family homes to high-rise office buildings. There are a few exemptions for non-profit entities, Community Land Trusts, and Limited-Equity Housing Cooperatives. Otherwise, however, LA’s new mansion tax applies to all transfers of real property within its boundaries.</p>

<p>The new ULA Tax is 4% on properties valued over $5 million, and 5.5% on properties valued over $10 million. This new tax is on top of the City and County of Los Angeles transfer tax of 0.56% ($0.56 per $100 of transfer value).</p>

<h2>How do these taxes interact with Section 1031 Exchanges?</h2>

<p>Section 1031 exchanges are for real estate that has been held for productive use in a trade or business or for investment. Thus, they do not apply at all to a taxpayer’s primary residence, second home, or vacation home.</p>

<p>Further, Section 1031 only defers capital gain and depreciation recapture taxes. Transfer taxes, mansion taxes, and similar taxes imposed at the sale or transfer of property are not deferred or abated by the use of a Section 1031 exchange.</p>

<p>However, they are accounted for in the real estate transaction, and do reduce the amount the taxpayer must replace. Remember that for full deferral, the taxpayer should trade equal or up in fair market value. Accounting for the transfer and “mansion” taxes, we might see something like this:</p>

<p>Sale Price&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $6,000,000</p>

<p>Transfer Tax&nbsp; &nbsp; &nbsp; &nbsp; ( $33,000)</p>

<p><u>Mansion Tax&nbsp; &nbsp; &nbsp; ( $240,000)</u></p>

<p>Net&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; $5,726,400</p>

<p>On this example, the taxpayer sold a $6,000,000 relinquished property, and should target a replacement property worth at least $5,726,400. This does not account for brokerage fees or other closing costs, which may also impact the taxpayer’s exchange target.</p>

<p>As always, taxpayers considering a Section 1031 exchange should consult with their tax and legal advisors before selling their property.</p>

<p>1031 Exchanges are a tax deferral tool for qualifying real estate transactions, they are always a way people can build and preserve wealth. Learn more about Estate Planning with 1031 Exchanges in this video.</p>

<p>&nbsp;</p>

<p class="text-align-center"><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/knqrMmuoiNA?controls=0&quot; title="YouTube video player" width="560"></iframe></p>