<p><span style="font-size:12pt"><span style="font-family:&quot;Times New Roman&quot;,serif">DENVER, CO, May 12, 2022 – Accruit, recently welcomed Jonathan Barge, J.D. to their team of staff attorneys. Jonathan joins Accruit after nearly 20 years in public service in the United States Air Force and as a law enforcement officer for the Bozeman, Montana Police Department. Additionally, Accruit welcomed Brad Dugger, a licensed REALTOR®, with over 10 years’ experience in the Real Estate Industry to the internal sales team, after his most recent role as Lead National Agent Development Trainer at Realogy Title Group. </span></span></p>

<p><span style="font-size:12pt"><span style="font-family:&quot;Times New Roman&quot;,serif">Jonathan is an active member of the Montana State Bar Association, his legal experience, client-focused practice, and background in public service makes him a valuable addition to the Accruit team of staff attorneys. “What an opportunity,” said Barge. “This position allows me to work side-by-side Accruit’s renowned subject matter expert and Managing Director, Max Hansen. I’m already seeing tangible results in applying this in-house training to advise Accruit clientele and their fiduciaries on both complex and straightforward exchange transactions. I’m very excited to develop in this new role and grow Accruit’s presence in the Northwest Rocky Mountain region.” </span></span></p>

<p><span style="font-size:12pt"><span style="font-family:&quot;Times New Roman&quot;,serif">Brad has an extensive background throughout the Real Estate Industry. From being a licensed REALTOR® to developing and instructing industry leading Continued Education (CE) courses to thousands of agents nationwide, including topics such as 1031 exchanges. Brad’s vast knowledge will be a great addition to business development at Accruit. “I cannot wait to hit the ground running. I look forward to utilizing the relationships I have within the real estate industry both in Florida and the greater United States to help investors defer capital gains and other taxes on their investment properties,” stated Brad.</span></span></p>

<p><span style="font-size:12pt"><span style="font-family:&quot;Times New Roman&quot;,serif">“We couldn’t be more excited to grow our footprint in Montana, and the Rocky Mountain Region as a whole, as well as within Florida and other Southern states with the addition of both Jonathan and Brad,” stated Steve Holtkamp, Executive Vice President of Accruit. </span></span></p>

<p><span style="font-size:12pt"><span style="font-family:&quot;Times New Roman&quot;,serif"><u>About Accruit</u></span></span></p>

<p><span style="font-size:12.0pt"><span style="font-family:&quot;Times New Roman&quot;,serif">Accruit is a leading independent, national Qualified Intermediary with over 20 years in the 1031 exchange industry, providing 1031 exchange service across all 50 states and specializing in all types of exchanges from forward, reverse, built-to-suit/improvement to non-safe harbor exchanges. Through its’ patented, 1031 exchange workflow technology, Exchange Manager Pro^SM, Accruit is proud to offer clients best in class customer service</span></span></p>

<p>Tax deferral in a proper 1031 exchange is based upon strict adherence to Internal Revenue Code Section 1031 and the <a href="/resources/internal-revenue-service-regulations-irc-ss1031">Regulations pertaining to that Code section</a>.&nbsp; In fact, there is a distinct emphasis of form over substance throughout the Regulations, and consequently there is no exception when it comes to the early release of funds. It is not sufficient for a taxpayer to change their mind in regards to a 1031 exchange and to state they are willing to pay the taxes in full on their gain. Logic suggest that this should be allowed, but unfortunately the IRS has not chosen to follow this commonsense practice. Only under specific circumstances are the early release of funds possible once a 1031 exchange is underway.&nbsp;</p>

<h2>Possible Reasons for Not Completing an Exchange</h2>

<h3>Failure to Identify within 45-day Period</h3>

<p>The Regulations state “The agreement may provide that if the taxpayer has not identified replacement property by the end of the identification period, the taxpayer may have rights to receive… money…at any time after the end of the identification period”. The most common reason that a taxpayer may not identify replacement property within the 45 day window is because the taxpayer did not find any property that was not to his satisfaction. The taxpayer may decide on a date prior to the 45 day date that she has not found anything to her liking, and she wishes to terminate the exchange, receive a return of her funds and pay the taxes otherwise due when someone sells rather than exchanges. Under other circumstances, a taxpayer can have every intention&nbsp;to identify replacement property within the 45-day period but may have fallen ill or had her home damaged in some type of catastrophe. Unfortunately, these good faith reasons to identify after the end of the identification period are not recognized in the Regulations. This may seem harsh, but short of the taxpayer’s location or the property's location being in a <a href="https://www.irs.gov/newsroom/tax-relief-in-disaster-situations">federal… disaster area</a>, the IRS does not make exceptions. Failure to identify replacement property within the 45-day period means your exchange will be closed on day 46 and funds will be released, you will have to report and pay taxes on the full gains.&nbsp;</p>

<h3>Failure to Acquire within the 180 day Exchange Period&nbsp;</h3>

<p>The Regulations further state: “An agreement limits a taxpayer's rights as provided in this paragraph (g)(6) only if the agreement provides that the taxpayer has no rights, except as provided in paragraphs (g)(6)(ii) and (g)(6)(iii) of this section, to receive …money… before the end of the exchange period.&nbsp;</p>

<p>Once one or more properties are identified the taxpayer needs to wait until she has received all the properties she is entitled to based on the identification. &nbsp;Should she choose to terminate the exchange before the end of the 180 day exchange period and pay full taxes, that cannot be done.<br />
&nbsp;&nbsp;</p>

<h2>When Early Release of Funds is Allowable under the Regulations</h2>

<p>Funds can only be released within the 180-day exchange period if one of the following occurs:</p>

<blockquote>
<p><em>(A) The receipt by the taxpayer of all of the replacement property to which the taxpayer is entitled under the exchange agreement, or</em></p>

<p><em>(B) The occurrence after the end of the identification period of a material and substantial contingency that –</em></p>

<p class="rteindent1"><em>(1) Relates to the deferred exchange,</em></p>

<p class="rteindent1"><em>(2) Is provided for in writing, and</em></p>

<p class="rteindent1"><em>(3) Is beyond the control of the taxpayer and of any disqualified person (as defined in paragraph (k) of this section), other than the person obligated to transfer the replacement property to the taxpayer</em></p>
</blockquote>

<p>An example of (A) is when a taxpayer identifies only one replacement property within the 45-day period, acquires the property after that period and still has additional cash in the exchange account.&nbsp; Since there are no more possible replacement properties, the funds can be returned. Those excess funds can be distributed after the sale closed on the replacement property, and the taxpayer will recognize gain only on that sum. However, if a taxpayer identifies two possible replacement properties, purchases just one and has funds left over because there is a still one available replacement property and funds remaining the funds will need to sit until the 180-day exchange period is through.&nbsp;Often, the Qualified Intermediary will suggest that the taxpayer make clear in the identification period that he only intends to buy one of the two properties.&nbsp; In this case, once the first property is acquired, excess funds can be paid back to the taxpayer after the replacement property sale closes.</p>

<p>In an example of circumstance (B), a Purchase and Sale Agreement for replacement property might contain a contingency providing that the taxpayer will need to obtain a zoning variance for the transaction to go ahead.&nbsp; Failure to obtain it would be a valid reason to terminate the exchange.&nbsp; Short of these limited exceptions, the Regulations do not provide the ability to terminate the exchange on demand, despite the taxpayer being willing to pay the applicable taxes due in the absence of a completed exchange.</p>

<h2>IRS Provides Clarity in Private Letter Ruling PLR200027028</h2>

<p>Prior to the Private Letter Ruling, it was generally assumed that termination of the exchange on demand was possible as long as the taxpayer was willing to pay full taxes due.&nbsp; The ability to terminate could not be part of a valid exchange agreement without tainting valid exchanges, however the exchange agreement could be amended to provide for this early distribution.</p>

<p>The IRS settled this uncertainty by the issuance of <a href="https://www.irs.gov/pub/irs-wd/0027028.pdf&quot; target="_blank">Private Letter Ruling PLR200027028</a>.&nbsp; The ruling detailed where an exemption to the rule against release might apply.&nbsp; However in the conclusion, the IRS held that in the absence of an occurrence of an event under (A) or (B) above, the exchange agreement could not be amended to allow for early distribution.&nbsp; The ruling states, “Accordingly, we rule that Exchangor’s standard exchange agreement and standard qualified trust agreement, as amended, do not meet the requirements of Section 1.1031(k)-1(g)(6)(iii) of the regulations.”</p>

<h2>Summary</h2>

<p>There are times when a taxpayer acting in good faith may seek to receive a return of his deposit while agreeing that the normal taxes will be due on the gain. &nbsp;Unfortunately the early return of funds is permissible in very limited circumstances, and a taxpayer should make sure those limitations are not an obstacle to entering into an exchange transaction.</p>

<p>Does compliance with the IRS position in these instances matter, when the exchange is not going to be carried out? Yes, it does. While it may not matter from the taxpayer’s standpoint if he is violating the rules for a successful exchange, the QI is responsible for adhering to a course of conduct outlined by the rules. Acting otherwise jeopardizes the QI’s position with the IRS and could jeopardize other exchanges that are otherwise valid.<br />
&nbsp;</p>

<p><em>Updated 5/5/2022.</em></p>

<p>DENVER, CO, April 27, 2022 – BHX 1031 Exchange, an independent Qualified Intermediary (QI) has seen a 50% increase in 1031 Exchange volume and at least a 50% reduction in laborious exchange processes since implementing Exchange Manager Pro^SM. Exchange Manager Pro^SM, a patented technology solution for 1031 exchanges, features autogenerated exchange agreements, assignments, and notifications. The cloud-based system allows for access to all 1031 exchange data, documents, and reports 24/7 from any device.</p>

<p>BHX 1031 Exchange’s CEO and Founder, Brad Horton, implemented Exchange Manager ProSM after outgrowing his original cumbersome software that required photocopying documents, manila file storage and manual, time-consuming tasks for each exchange. Brad stated that implementing Exchange Manager Pro^SM was, “one of the better decisions” he ever made. The digital solution eliminates paper processes and the need for storing paper files.</p>

<p>BHX notes that some of the most beneficial features of Exchange Manager Pro^SM include: the ability to have all information in one click, efficiencies created through single-entry data, and the support provided during implementation, training and beyond. “It is like having two or three brains without having to issue paychecks,” said Brad.</p>

<p>“We couldn’t be more excited to see the results Brad and BHX 1031 Exchange are seeing with Exchange Manager Pro^SM. Our one-of-a-kind, patented 1031 exchange software can revolutionize the industry, becoming the standard method by which all 1031 exchanges are processed,” stated Brent Abrahm, President and CEO of Accruit.</p>

<p><strong>About Exchange Manager Pro SM</strong></p>

<p>Exchange Manager Pro^SM&nbsp;is a proprietary, online software application that makes administering 1031 exchanges safe, secure, and simple. Exchange Manager Pro^SM was designed to automate routine functions of Qualified Intermediaries including: online client onboarding, document creation and distribution, and automatic deadline reminders and notifications.</p>

<p><strong>About BHX 1031 Exchange</strong></p>

<p>BHX 1031 Exchange, founded by Brad Horton, with over 27 years’ experience in 1031 tax exchanges involving over 7,000 transactions throughout the country. Brad has been involved in the Arizona real estate marketing since 1977 and has over 45 years’ experience including purchasing properties for investors, mortgage lending, and teaching continuing education such as contract law, Understanding the 1031 Exchange.</p>

<h2>What is the Same Taxpayer Rule in a 1031 Like-Kind Exchange?</h2>

<p>In a 1031 exchange, the taxpayer who owns the relinquished property must be the same taxpayer who takes ownership of the replacement property.&nbsp; Keep in mind that one of the justifications for tax deferral is that a taxpayer has reported all the incidences of ownership and that the taxpayer’s basis will carry over into the new replacement property.&nbsp; The taxpayer is only getting deferral, not permanent tax avoidance, and the sheltered gain will be due ultimately upon a future sale of the property without an exchange. If the taxpayer were to change tax identities within an exchange, there would be no continuity of tax ownership and no reason to afford deferral.</p>

<p>In addition, the exchange regulations provide that the taxpayer must transfer the relinquished property as well as receive the transfer of the replacement property. &nbsp;If, for tax purposes, the taxpayer changes its tax identity between the sale and the purchase, then the same taxpayer will not have disposed of and received property.&nbsp; So, while the same taxpayer requirement will not be found by those words in the regulations, it is very clearly implicit.</p>

<p>When determining what constitutes “the same taxpayer” the tax identity may be different than the legal title.&nbsp; It is the tax identity that must be maintained and follow from the relinquished property ownership to the replacement property ownership.&nbsp; Another way to look at this is whether the selling and buying entities use the same social security number for both properties and does it change to a Federal Tax-Identification Number (FEIN or EIN) from one property to the other. The social security number would typically be used for a single individual’s ownership, including ownership under tax disregarded entities discussed below in more detail. The FEIN number would typically be used for a business or an entity ownership consisting of more than one person or more than one entity, such as a multi-member limited liability company or a partnership.</p>

<h2>Can a Taxpayer Change the Ownership but Maintain the Tax Identity?</h2>

<p>Remember that we are talking about the tax identity, not necessarily the specific name of the title of the property.&nbsp; So let’s look at some various ways in which a taxpayer can hold title that would preserve the tax identity:</p>

<ul>
<li>Hold title in taxpayer’s own name</li>
<li>Hold title under a single member limited liability company (LLC)</li>
<li>Hold title as the trustee of a Revocable Living Trust</li>
<li>Hold title as beneficiary of an Illinois type land trust</li>
<li>Hold title as a Tenant in Common (TIC)</li>
<li>Hold title under a Delaware Statutory Trust (DST)</li>
</ul>

<h3>Holding Title in the Taxpayer’s Own Name</h3>

<p>Using the taxpayer’s own name is the most common form or ownership.&nbsp; This ownership can be as an individual, LLC, partnership, etc.&nbsp; There is always a tax identification number associated with this ownership.&nbsp;</p>

<h3>Holding Title as a Single Member LLC, Trustee of a Revocable Living Trust, or TIC</h3>

<p>Single member LLCs and Self Declarations of Trust (Living Trust) are known as “tax disregarded entities.” These entities are taxed to the party that is the sole member of the LLC or the grantor/beneficiary of the trust.&nbsp; A TIC is also deemed to be owned by the owner of that Tenant in Common share.&nbsp; The fact that there are other co-owners of the property has no adverse consequences to the taxpayer being the same taxpayer who sold the property individually.</p>

<h3>Holding Title under a Delaware Statutory Trust</h3>

<p>DSTs themselves are regarded as a trust, however the owner of a DST share is regarded as owning a beneficial interest in the trust.&nbsp; As such, a person selling as an individual but buying through a DST interest is still treated as the same taxpayer assuming the beneficial interest is held in the same individual taxpayer’s name.&nbsp; In 2004, <a href="https://www.irs.gov/irb/2004-33_IRB/ar07.html&quot; target="_blank">the IRS issued a ruling confirming that the use of a DST for the purchase of replacement property was permissible with certain restrictions</a>.</p>

<h3>Holding Title as Beneficiary of an Illinois Type Land Trust</h3>

<p>The Illinois land trust is similar to the DST in that the owner of the trust interest is considered to be holding the beneficial interest in the trust that holds title to the property.&nbsp; Since an exchange of a “beneficial interest” was not allowed under Section 1031 in the past, &nbsp;many sellers of property within a land trust faced a lot of uncertainty as to how to proceed.&nbsp; Eventually the IRS issued Private Letter Ruling 92-105 confirming that due to the unique nature of an Illinois land trust, the beneficiary causing sale of land trust property would qualify for a real estate exchange and was not subject to the beneficial interest prohibition.</p>

<h2>The Same Taxpayer Rule and Spouses</h2>

<p>There are times when only one spouse is on title to the relinquished property and the taxpayer would like to add the spouse to the title to the replacement property. This is not encouraged since the other spouse was not the same taxpayer who sold the relinquished property. When a taxpayer does want to bring the spouse on title, advisors usually suggest waiting until the “exchange is old and cold.” Waiting several years should be sufficient.</p>

<p>Other times, only one spouse will be on title to property but the lender in connection with the replacement property financing will require the additional spouse to go on title as a condition of the loan. If this is a written request from the lender, rather than the taxpayer’s election, it is unlikely that the IRS would find it objectionable. Should someone wish to use an abundance of caution, a document could be drawn up confirming that the additional spouse is holding the interest “in trust” on behalf of the original spouse.</p>

<h2>Spouses in Community Property States</h2>

<p>In cases where only one spouse is on title to the relinquished property there is an exception to the requirement that only that spouse may be on title to the replacement property. This exception can be found in community property states where if the spouses live in one such state both spouses are deemed to own the property regardless of only one of the spouse holds legal title. While this will apply to most real estate ownership in these states, there are a few exceptions such as the real estate being the subject of a gift or inheritance of one spouse.&nbsp;</p>

<p>These states include:&nbsp;</p>

<ul>
<li>Arizona</li>
<li>California</li>
<li>Idaho</li>
<li>Louisiana</li>
<li>Nevada</li>
<li>New Mexico</li>
<li>Texas</li>
<li>Washington</li>
<li>Wisconsin</li>
</ul>

<h2>Death of a Taxpayer during a 1031 Exchange</h2>

<p>There are instances in which a taxpayer passes away at a point in time after the sale of the relinquished property and before the purchase of replacement property.&nbsp; In the absence of continuation of the exchange in these instances, the estate would be taxed on the gain from the sale.&nbsp; However, in spite of the fact that a (deceased) individual and his estate are not the same taxpayer, the regulations do allow the estate to continue the exchange transaction and receive deferral.</p>

<h2>Summary</h2>

<p>The theory behind like-kind exchange tax deferral is based upon continuity of a taxpayer’s investment.&nbsp; Implicit with this is that if the taxpayer changes between the disposition of an asset and the acquisition, there cannot be continuation of the <em>taxpayer’s</em> investment.&nbsp; However, there are various types of property-holding arrangements, many of which are disregarded for tax purposes, that allow for a taxpayer to hold relinquished property in a different name while meeting the same taxpayer requirement.</p>

<p>&nbsp;</p>

<p><em>Updated 4/26/2022.</em></p>
<!--HubSpot Call-to-Action Code -->

<p>It is quite common for clients to call a 1031 exchange company with questions regarding exchanges of their former or future principal residences or vacation homes.&nbsp; Under what circumstances can these dwellings be used as part of a 1031 exchange?&nbsp; Do they satisfy the requirement that both the relinquished and replacement properties must be held for investment or for use in a business or trade?&nbsp; Does some personal use trump the investment use of the property?&nbsp; This blog is intended to answer these commonly asked questions:</p>

<ul>
<li>Under what circumstances can a second home or vacation home constitute relinquished or replacement property for the purposes of a 1031 exchange?</li>
<li>Can a principal residence be converted into an investment property eligible for 1031 tax deferral upon sale?</li>
<li>Can a property that has been held for investment be converted to a principal residence and what are the rules when it is sold?</li>
<li>Can a mixed use property be sold with a personal residence exemption and 1031 exchange deferral?</li>
</ul>

<h2>Rules for Including a Vacation Home in a 1031 Exchange</h2>

<p>Historically, determining whether a home that was both rented out and used by its owner could be eligible for 1031 tax deferral was difficult to ascertain.&nbsp; There was some case law but that was a bit inconsistent.&nbsp; The IRS attempted to provide some definitive guidance regarding some of these questions in the form of <a href="/exchange-library/rev-proc-2008-16-exchanges-vacation-homes-and-rental-property">Revenue Procedure 2008-16</a>.&nbsp; As the IRS aptly put it:</p>

<p style="margin-left:.5in;">“The Service recognizes that many taxpayers hold dwelling units primarily for the production of current rental income, but also use the properties occasionally for personal purposes. In the interest of sound tax administration, this revenue procedure provides taxpayers with a safe harbor under which a dwelling unit will qualify as property held for productive use in a trade or business or for investment under §1031 even though a taxpayer occasionally uses the dwelling unit for personal purposes.”</p>

<p>This revenue procedure made clear that for a relinquished vacation property to qualify for a 1031 exchange, the property has to be owned by the taxpayer and held as an investment for at least 24 months immediately prior to the exchange.&nbsp; Additionally, within each of the two 12-month periods prior to the sale, the property must have been rented at fair market value to a person for at least 14 days or more, and the taxpayer cannot have used the property personally for the greater of 14 days or 10% of the number of days in the 12-month period that it had been rented.&nbsp;</p>

<p>The requirements for property to qualify as a 1031 replacement property are very similar.&nbsp; The property has to be owned by the taxpayer for at least 24 months immediately after the exchange.&nbsp; Also, within each of the two 12-month periods after the exchange, property must have been rented at fair market value to a person for at least 14 days or more and the taxpayer cannot have used the property personally for the greater of 14 days or 10% of the number of days in the 12-month period that it had been rented.&nbsp; The taxpayer is allowed to use the relinquished or replacement property for additional days if the use is for property maintenance or repair.</p>

<h2>Rules for Converting a Personal Residence for a 1031 Exchange</h2>

<p>In many cases, conversion of a personal residence to a property held as an investment or for use in a business or trade "exchange eligible property," as defined above, may still allow a taxpayer to receive a full exemption of gain pursuant to the rules of Internal Revenue Code Section 121 upon sale of the property.&nbsp; That Code section provides for an exclusion of gain of up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly upon the sale of a principal residence.&nbsp; There is a requirement that during the five-year period immediately preceding the sale, the taxpayer must have used the property as a principal residence for a cumulative period of at least two years.&nbsp;</p>

<p>Even if the property has had principal residence use followed by exchange eligible use, the taxpayer does not necessarily have to do an exchange on the investment/business use of the property if the total gain can be sheltered by the §121 allowed exclusions.&nbsp; So even if during the immediate two years preceding the sale, the property was used as exchange eligible property, the taxpayer may still benefit from the personal residence exclusion.&nbsp; In the event the gain exceeds the maximums allowed for per IRC Section 121 primary residence, the taxpayer may still be able to shelter the balance via a 1031 exchange, thus combining the benefits of these two code sections.</p>

<p>Under Revenue Procedure 2008-16 the conversion of the principal residence to an exchange eligible investment property does not disqualify a family member as the tenant.&nbsp; However, the revenue procedure requires that this should be done at a fair market rental and it must constitute the family member’s personal residence and not the family member’s vacation home.&nbsp; There are additional rules for the rental of the property by a family member who co-owns the property with the taxpayer.</p>

<p>Should a taxpayer wish to convert the personal residence to exchange eligible property, the taxpayer must have owned the property for the two years immediately prior to the sale and:</p>

<ol>
<li>For each of the years the property must be rented to a person for 14 days or more</li>
<li>The taxpayer’s personal use has to be limited to no more than 14 days per year or less than 10% of the days per year that property is rented.</li>
</ol>

<h2>Rules for Converting a 1031 Exchange Property to a Personal Residence</h2>

<p>If the taxpayer’s intent, based upon facts and circumstances at the time of the property acquisition was to hold the property as an investment or for use in a business, the subsequent conversion use of the property to use as a principal residence should not otherwise jeopardize the ability to exchange.&nbsp; As an example, a taxpayer may wish to exchange into a rental condominium in Florida and upon retirement relocate from a northern state into the condominium as the principal residence.</p>

<p>If the taxpayer subsequently sells the principal residence, there may be the ability to defer the gain under §121.&nbsp; However there are some limitations to this deferral upon conversion, otherwise taxpayers might convert exchange property into a principal residence property, sell shortly thereafter, and seek IRC Section 121 primary residence deferral.&nbsp; These rules require that the property has to be held for at least five years in total with the period of time the property was held as an exchange property included.&nbsp; The period of time the property was used as an exchange property needs to be backed out of the calculation for the principal residence use deferral.&nbsp; This calculation is made by using the period of time the property was held as an exchange property as the numerator and the period of time the property was held in total as the denominator.&nbsp; The resulting fraction or percentage would be applied to the total gain and the resulting dollar amount would not be eligible for a §121 deferral.&nbsp;</p>

<p>Take the example of a property owned by a taxpayer for seven years prior to sale, three of which were used as an exchange property and four of which were used as the taxpayer’s principal residence.&nbsp; Assume that the gain upon sale is $200,000.&nbsp; Dividing the number of three years by seven years x $200,000 results in the amount of $85,714 which is taxable.</p>

<h2>1031 Exchanges and Mixed Use Properties</h2>

<p>At times, a taxpayer may own a home as the principal residence but part of the property may have been used as an investment or in connection with a business or trade, creating an exchange eligible component.&nbsp; This is known as a mixed use property.&nbsp; An example might be a psychologist who sees patients in a home office.&nbsp; Another example might be a property with a separate coach house that is rented out.&nbsp; It is quite common for a taxpayer to sell a three flat where the taxpayer uses one unit as the principal residence.&nbsp; In these instances IRC Section 121 and IRC Section 1031 can both be used to achieve total deferral.&nbsp; &nbsp;&nbsp;</p>

<p>There is one caveat with exchanges of mixed use properties, which is that on closing statements there is a tendency to give credits for prorated rent and security deposits to the buyer.&nbsp; This causes the net amount of proceeds attributable to each property use component to be reduced proportionately.&nbsp; Technically, those credits only pertain to the exchange eligible portion of the property and should not appear as a credit on the personal residence portion of the sale.</p>

<h2>Summary</h2>

<p>A variety of circumstances surround property that has been or will be exchange eligible and may also have been used or will be used by the taxpayer as a principal residence or vacation home.&nbsp; Revenue Procedure 2008-16 provides rules regarding vacation homes and exchange eligible property.&nbsp; Likewise, there are rules under IRC Section 121 for converting exchange property into a personal residence and vice-versa.&nbsp; Properties that have both a principal residence component as well as an exchange-eligible one can benefit by both the deferral sections, but care should be taken to do proper accounting so that buyer credits affect the exchange eligible portion of the sale only.</p>

<p>&nbsp;</p>

<p><em>Updated 4/18/2022.</em></p>

<p>Exchange Manager Pro^SM by Accruit had the pleasure of not only attending, but co-sponsoring the recent Qualia Future of Real Estate Summit 2022 (FORES22). FORES22, Building a Connected Tomorrow, was designed to bring together title &amp; escrow, mortgage, and property tech companies to explore technology, processes, and business models to unite all segments for an improved client experience. Exchange Manager Pro^SM was right at home, introducing its white label 1031 exchange solution, Managed Service, to companies in attendance from across the US.</p>

<h2>What is Managed Service?</h2>

<p>Managed Service through Exchange Manager Pro^SM provides a value add for title companies and others that are interested in offering 1031 exchange services. The white-labeled 1031 exchange technology solution allows the company, referred to as exchange facilitator, to maintain the relationship with their client while Exchange Manager Pro^SM provides all of the documentation and banking services of the Qualified Intermediary (QI) behind the scenes, providing a turnkey 1031 exchange experience for all parties.</p>

<p>Managed Service not only provides an improved customer experience for the exchange facilitator’s client, but it also eliminates the need for companies to turn away clients or worse, recommend a competitor for the 1031 exchange. Lastly, it creates a new income source for exchange facilitators through a revenue share.</p>

<h2>How does Managed Service Work?&nbsp;</h2>

<p>Implementing our white-labeled QI, Managed Service, is seamless for all involved. Once a Managed Service agreement is in place, there are a few simple steps for the exchange facilitator to follow in order to offer in-house 1031 exchange services to their existing clients:</p>

<ol>
<li>Qualify the client for a 1031 Exchange: Is the client interested in doing a 1031 exchange on their real estate transaction? Utilize a provided guide to confirm the client and their transaction qualify for a 1031 exchange.<br />
&nbsp;</li>
<li>Collect client information and documents: Through our cloud-based intake form, submit client info and documentation pertinent to the 1031 exchange. All information required is likely already on-hand due to the work your company is already completing on behalf of the client.&gt;<br />
&nbsp;</li>
<li>Once all information is provided, the remaining 1031 exchange processes will be facilitated through Exchange Manager Pro^SM including document creation and execution, deadline reminders, wiring of funds, etc.</li>
</ol>

<p>Through Managed Service, companies can facilitate 1031 exchanges for their clients and ultimately retain future business by keeping everything under one roof.</p>

<h2>Benefits of Managed Service</h2>

<p>While there are numerous benefits of implementing Managed Service, some of the more notable benefits that will directly impact your company’s bottom line include:</p>

<ul>
<li><b>Retain 1031 Exchange Business:</b> When your client requests a 1031 Exchange, instead of referring them to another company that services 1031 exchanges and potentially losing future business with that client, you will be able to facilitate the 1031 exchange in-house and preserve future business.<br />
&nbsp;</li>
<li><b>Offer 1031 Exchanges as a Disqualified Party</b>: Per IRC §1031 you may be a disqualified party and unable to facilitate the 1031 exchange; however, through Managed Service you could still offer 1031 exchange services.<br />
&nbsp;</li>
<li><b>Drive Income Through NEW Revenue Share:</b> With minimal effort and manpower on your end, you will drive income through a new, favorable revenue share while retaining your current clients – win, win!</li>
</ul>

<p>Learn more about <a aria-label="Managed Service by Exchange Manager Pro 1031 exchange software" href="/managed-service" title="Managed Service by Exchange Manager Pro 1031 exchange software">Managed Service.</a></p>