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Preserve Your Agricultural Assets with 1031 Exchange

1031 like kind exchange

06/07/21

Like-kind exchanges provide benefits to sellers of agricultural property under Internal Revenue Code Section 1031. Section 1031 helps preserve the sellers’ agricultural ...

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Like-kind exchanges provide benefits to sellers of agricultural property under <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="Start an Exchange with Accruit">Internal Revenue Code Section 1031</a>. Section 1031 helps preserve the sellers’ agricultural assets, such as farmland and ranches, utilized for productive use in a trade, investment, or business purposes, when the seller exchanges their property for a “like-kind” property. “Like-Kind” property can be defined as any real property used for trade, investment, or business purposes. In broadest terms, Section 1031 gives sellers the right to exchange business or investment real estate to purchase other business or investment real estate. There is often misunderstanding when it comes to “Like-kind” property as “like-kind” does not mean the same type of property as the property being sold.

This common misconception people have when selling agricultural property is that you must buy agricultural property in a <a href="https://www.accruit.com/blog/1031-real-estate-exchanges-what-like-kind&…; title="1031 like-kind exchange">1031 like-kind exchange</a>. The fact is you can buy any real property such as farm, ranch, apartment complex, commercial building, or rental home used for trade, investment, or businesses purposes. These rules allow agricultural property owners to diversify their investments and grow a wider range of assets. Without 1031 tax deferred exchange, agricultural property owners will be held responsible for paying taxes on the property being sold, even if they reinvest and purchase new property.

<h2>What can Agricultural Property Owners Exchange with 1031?</h2>

Agricultural property owners can exchange labor, chemical, and water intensive land into less management intensive property such as residential or office condominiums. Or they can exchange conservation easements on their ranch land to acquire new property.

<div class="accruit_dark_blue_color">For example:</div>

<div class="accruit_dark_blue_color">Recently a client sold two easements on his agricultural land. One of the easements restricted his ability to use the wells on his land. This helps keep water in the underground aquifers and permits more water to flow further downstream for other users. The second easement restricted his ability to use chemical fertilizers on his land. The societal benefit here is that fewer chemicals being applied to the land mean fewer chemicals running into the streams, polluted the water, and killing the fish. The cash generated by the sale of the easements was used to acquire a few single-family homes nearby, which will be used as VRBO/Airbnb type rentals.</div>

<h2>Time is of the essence when it comes to Selling and Obtaining Real Property</h2>

Timing is crucial when it comes to selling and acquiring real property in a <a href="https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex…; title="1031 tax deferred exchange">1031 tax deferred exchange</a>. As property owner, you will need to contact a qualified intermediary, like Accruit, to process a 1031 tax deferred exchange. Without doing so, you may miss out on an opportunity to invest while you are waiting on your current property to sell. <a href="https://www.accruit.com/blog/tax-code-sections-1031-and-1033-whats-diff…; title="section 1031 like-kind exchange">Section 1031</a> gives the seller 180-days to replace their property when exchanging into another real property.

<h2>Why am I doing a 1031 tax deferred exchange?</h2>

<ul>
<li>Diversify your portfolio

<ul>
<li>Rather than having all of your funds locked into one large property, you can reinvest into multiple properties of different asset classes (residential, commercial, retail, etc.).</li>
<li>Rather than having all of your funds locked into one location, you can reinvest across town, or across the country, to take advantage of stronger opportunities. </li>
<li>Spread assets into smaller investments as party of an estate plan.</li>
</ul>
</li>
<li>Upgrade or consolidate your portfolio
<ul>
<li>Rather than having your investments scattered across the county, consolidate into fewer, larger properties.</li>
</ul>
</li>
</ul>

For more information, <a href="https://www.accruit.com/contact-us">contact Accruit</a> and subscribe to our <a href="https://www.accruit.com/blog/">blog</a> to learn more about 1031!

Metatags:

Title:

Preserve Your Agricultural Assets with 1031 Exchange

1031 like kind exchange

06/07/21

Like-kind exchanges provide benefits to sellers of agricultural property under Internal Revenue Code Section 1031. Section 1031 helps preserve the sellers’ agricultural ...

Support Section 1031 Like-Kind Exchanges

support 1031 exchanges

05/27/21

President Joe Biden’s proposed American Family Plan places severe limitations on Internal Revenue Code Section 1031 like-kind exchanges. Our communities ...

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Section 1031 of the tax code positively impacts more than 19,500 communities, supports 568,000 jobs and adds $55 billion in value to our GDP.  1031 like-kind exchanges facilitate repurposing commercial real estate to a more productive use and helps American farmers better finance their operations. President Joe Biden’s proposed American Family Plan places severe limitations on Internal Revenue Code Section 1031 like-kind exchanges. Our communities will be severely impacted if we do not take action to preserve IRS Section 1031.  <o:p></o:p>

<o:p></o:p>

How can I help?

<ol>
<li><a aria-label="Save 1031 Exchange Submit a Letter to Congress" href="https://www.1031taxreform.com/take-action/" title="Save 1031 Exchange Submit a Letter to Congress">Submit a letter to congress</a><o:p></o:p></li>
<li class="MsoNormal">Spread the word! Talk to those around you about this issue and why it matters</li>
</ol>

<o:p></o:p>

Section 1031 impacts the growth of our communities.’ Support Section 1031 today! #Revolutionize1031

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Support Section 1031 Like-Kind Exchanges

support 1031 exchanges

05/27/21

President Joe Biden’s proposed American Family Plan places severe limitations on Internal Revenue Code Section 1031 like-kind exchanges. Our communities ...

The 1031 Exchange Hybrid Solution - Combining Forward and Reverse Exchanges

1031 exchange

05/20/21

An increasing number of exchangers are structuring their transactions as 1031 reverse exchanges, wherein the taxpayer first arranges for the acquisition ...

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Most Section 1031 Like-Kind Exchange transactions involve a taxpayer who sells a relinquished property and then acquires a replacement property within the appropriate guidelines. An increasing number of exchangers are structuring their transactions as 1031 reverse exchanges, wherein the taxpayer first arranges for the acquisition of the replacement property and later sells their relinquished property. But there is a hybrid solution that often is overlooked – this is a combination <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="forward-reverse exchange">forward-reverse exchange</a>.

<h2 class="MsoNormal"><a style="mso-comment-reference:AA_1;
mso-comment-date:20210518T1416">The Situation</a></h2>

Karen currently owns a small strip center and has received an attractive offer to sell the property for $500,000. She also has a small office building she is trying to sell, also worth about $500,000. She was planning to sell both properties and combine the proceeds to acquire replacement property worth at least $1,000,000.<o:p></o:p>

<h2 class="MsoNormal"><a style="mso-comment-reference:AA_4;
mso-comment-date:20210518T1416">The Problem</a></h2>

Karen’s small strip center will close in about 45 days, but she has not yet received any offers on the office building. The fact that she has identified a suitable replacement property for which the seller has agreed to accept $1,000,000 if she can close in 60 days further complicates matters. With the office building being under contract and not yet the subject of negotiations, she is worried about how to accomplish her <a href="https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex…; title="1031 exchange goals">1031 exchange goals</a>.<o:p></o:p>

<h2 class="MsoNormal">The Solution: A Combination Forward-Reverse Hybrid 1031 Exchange<o:p></o:p></h2>

Karen will structure the sale of her small strip center as part of a <a href="https://www.accruit.com/blog/tax-code-sections-1031-and-1033-whats-diff…; title="section 1031 like-kind exchange">Section 1031 Like-Kind Exchange</a>. After consultation with her attorney and Accruit as the Qualified Intermediary (“QI”), Karen understands both the forward 1031 exchange and <a href="https://www.accruit.com/blog/infographic-10-steps-reverse-exchange" title="reverse 1031 exchange">reverse 1031 exchanges</a> process.<o:p></o:p>

The sale of the strip center took place on March 1, 2021, and the exchange proceeds were sent directly to Accruit, the qualified intermediary, to be held on her behalf until the purchase of her replacement property. This is necessary because a taxpayer participating in a like-kind exchange cannot be in actual or constructive receipt of the net sale proceeds while the exchange is pending.<o:p></o:p>

Within 45 days after the closing on the sale, Karen identified a one-half interest in her target replacement property using <a href="https://www.accruit.com/blog/what-are-rules-identification-and-receipt-… Rules in 1031 Exchanges</a>. Karen also worked closely with the qualified intermediary, Accruit, to begin the reverse exchange component of her transaction. Accruit, through its affiliate, known as an Exchange Accommodation Titleholder (“EAT”) will take title to the other one-half interest in Karen’s target replacement property.<o:p></o:p>

Specifically, Karen will lend the additional $500,000 to a new LLC (let us call it Newco LLC), with the EAT as its sole member, which was established specifically for the purpose of facilitating the reverse 1031 exchange. The loan from Karen to Newco LLC will be documented by a note and secured with a pledge of the EAT’s membership interest in Newco LLC.<o:p></o:p>

Karen ultimately closes on the acquisition of the target replacement property on April 30, 2021, with title vested 50% in her personal name and 50% in Newco LLC, as tenants in common. (Learn more about <a href="https://www.accruit.com/blog/fractional-ownership-real-estate">Tenants in Common</a>.) On June 1, 2021, while the replacement property is held by Karen and Newco, Karen enters a contract to sell the small office building, her second relinquished property, for $540,000, with a closing date of August 20, 2021. At closing, after all closing costs are paid, the net proceeds of $500,000 will be deposited into Karen’s exchange account with Accruit. Karen will acquire the remaining 50% tenancy in common interest from the EAT and will direct Accruit to transfer the funds from the exchange account to the closing agent for this portion of the transaction.  Immediately Upon receipt of those funds the EAT will direct the closing agent to remit that sum to Karen to pay off the loan that was made to the EAT to acquire the new property. Upon payoff of the $500,000 loan owed to Karen, Karen receives full ownership of the replacement property.  In this manner it is the same as if Karen had acquired the replacement property outright from seller.<o:p></o:p>

<h2 class="MsoNormal">The Result<o:p></o:p></h2>

Karen used the forward exchange for the sale of the strip center and the reverse exchange for the sale of the office building to ultimately acquire 100% of the new building, deferring the taxes on both sales in the process. In doing so, Karen exchanged from two properties worth approximately $1,000,000 into a single, more desirable building worth about the same.<o:p></o:p>

<o:p></o:p>
</div>
</div>

Metatags:

Title:

The 1031 Exchange Hybrid Solution - Combining Forward and Reverse Exchanges

1031 exchange

05/20/21

An increasing number of exchangers are structuring their transactions as 1031 reverse exchanges, wherein the taxpayer first arranges for the acquisition ...

Reverse 1031 Exchange: Considerations in Financing the Purchase of Replacement Property

1031 explained

05/12/21

A reverse 1031 exchange provides an alternative to traditional 1031 exchanges that can be a powerful tool for exchangers. In a hot ...

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In a hot market or market’s with limited inventory, the 45-day identification rules under a 1031 tax deferred exchange can feel like too small a window. (To read more about 1031 exchange process and rules, visit our <a href="https://www.accruit.com/property-owners/1031-exchange-explained"><sp… explained</a> page) Luckily, the <a href="https://www.accruit.com/blog/1031-like-kind-exchanges-myths-vs-realitie… exchange rules</a> provide for the ‘Reverse 1031 Exchange’ to exist. Under the Treasury Regulations, exchanges must be completed in the proper sequence. This means the sale of the relinquished property must take place before the acquisition of the new or replacement property. However, on occasion, the facts are such that a taxpayer wishes to acquire the new property before the sale or risk losing the desired new property. This reverse sequence, also approved by the IRS, is often referred to as a “<a href="https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex… 1031 exchange</a>.” The reverse exchange technique essentially consists of an exchange accommodator holding or “parking” title to the new property on behalf of the taxpayer to avoid the taxpayer having simultaneous ownership of two properties. Immediately after the sale of the old property (but no later than 180 days) the exchange accommodator transfers the new property to the taxpayer. This 'technically' creates the proper sequence. Financing the Purchase of the Replacement Property

The concept of a Reverse 1031 exchange can sound attractive to many investors until the reality of financing the purchase of the replacement property is considered.  For investors with the means to purchase the property outright in cash or those with strong lending relationships this can be relatively straightforward, however, for others they must ensure they take some nuances into consideration such as:

<ol>
<li>The title to the replacement property will be parked with an entity created by the Qualified Intermediary for the sole purpose of holding title to the property.  The loan cannot be in the name of the taxpayer, but instead must be in the name of the parking entity.  This requires a short-term bridge loan that can be refinanced into a longer-term loan or paid down once the old property is sold and new property is transferred into the name of the taxpayer.  Many banks will not entertain these loans as they do not fit into their traditional lending model.  It may take some time discussing with several local or regional banks to get them to understand the structure.  </li>
<li>Ensure you have sufficient collateral and equity.  Banks will underwrite the replacement property as well as look at the taxpayers overall financial position to ensure adequate coverage.  Traditionally, banks are willing to lend between 65-75% of the replacement property’s value to qualified buyers depending on the type of property and quality of collateral.</li>
<li>Think about financing well in advance of pursuing a purchase through a reverse 1031 exchange.  Banks take time to order appraisals and underwrite collateral for specialty bridge financing.  This can be several weeks.  If you are in a rush and can’t wait for a bank, there are lenders willing to provide these types of loans, but you are going to pay handsomely for it in rate and upfront fees</li>
</ol>

Financing a reverse  exchange can be more difficult than a traditional loan, but it is common place for 1031s.  Take the time and do the research by speaking with several banks and the right Qualified Intermediary - <a href="https://www.accruit.com/contact-us" title="Start an Exchange with Accruit">Accruit</a>.

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Title:

Reverse 1031 Exchange: Considerations in Financing the Purchase of Replacement Property

1031 explained

05/12/21

A reverse 1031 exchange provides an alternative to traditional 1031 exchanges that can be a powerful tool for exchangers. In a hot ...

Stop the Rhetoric - Understanding the Social Impact of 1031 Exchanges on America

section 1031

05/06/21

When President Biden released his American Family Plan last week, under which Internal Revenue Code Section 1031 like-kind exchanges would be ...

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When President Biden released his American Family Plan last week, under which Internal Revenue Code <a href="https://www.accruit.com/blog/1031-real-estate-exchanges-what-like-kind&…; title="section 1031 like-kind exchange">Section 1031 like-kind exchanges</a> would be severely limited, the true negative impact this would have on America began to sink in. Not the impact to the corporations or the high-net worth individuals that so routinely and inappropriately are pegged as the sole beneficiaries of Section 1031, but to the American public – everyday working-class citizens who rely on real estate to provide services, rental homes, work-force housing, medical assistance, retirement communities, and schools, just to name a few. Should 1031 exchanges be impacted, many Americans will experience either lack of services or dramatic increases in costs to receive similar benefits.

Because owners and investors of real estate have been leveraging Section 1031 for over 100 years, America’s economy and people reap the benefits of this time proven tax strategy. When certain sectors of U.S. real estate are not providing their most useful and economic utilization to owners, neighborhoods, and cities, that real estate should be repurposed. By providing a deferral of the gain –not an avoidance –through a 1031 exchange, the owner of the property is able to reinvest the proceeds back into the U.S. economy and place them into a more productive property benefiting the investor, the recipients who utilize the property, and the communities where these properties are located.   <o:p></o:p>

Today, <a href="https://www.accruit.com/blog/real-estate-transaction-basics" title="1031 real estate">1031 exchange real estate</a> investors are choosing more and more to invest in social impact projects benefiting neighborhoods, communities, and our country. In recent years, up to 70% of targeted project funding needs were benefited by 1031 exchange proceeds. These included a Special Needs School in Minnesota in 2019, a Goodwill Store in Florida last year, and a Fertility Clinic in Illinois this year. Other examples include numerous Dollar General thrift stores, DaVita Kidney Care centers, CVS Pharmacies, Fresenius Medical Care dialysis centers, and Walmart's. Since these projects are larger investment opportunities overall, aggregating multiple real estate investors’ exchange proceeds is necessary to ensure these impactful projects are completed. For the builders focused on making a social impact, <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="1031 exchange">1031 exchange</a> monies are cheaper, less risky, and faster to deploy than typical funding sources.  Absent 1031 exchanges, these projects, if they even get funded, would require a higher cost of after-tax capital, including more debt, causing the increased cost to be pushed to the ultimate residents of the property in the form of higher rents.

Investments into single family rentals (SFRs) are another example of <a href="https://www.1031taxreform.com/take-action/" title="1031 proceeds supporting social impact">1031 exchange proceeds supporting social impact</a>. Across the U.S., investors are recognizing the investment opportunities and the importance of securing rental properties to provide housing other than multi-family properties. During the COVID-19 pandemic, and for years to come, families will continue to seek a home as opposed to dense community living. For SFR companies that eventually sell the homes to their renters, using 1031 exchanges keeps their cost of capital low due to the deferral, which allows them to pass that on through lower rents and lower sale prices to the eventual tenant and buyer<o:p></o:p>

So, for skeptics out there, first understand the rules around <a href="https://www.accruit.com/blog/preserving-section-1031" title="IRC 1031">Internal Revenue Code Section 1031</a> and stop the rhetoric that ‘only the rich benefit from 1031 exchanges.’ Section 1031 is not simply checking the box, or filing an IRS form, or even hiring enough attorneys to avoid paying gains. No, facilitating a proper 1031 like-kind exchange requires planning, coordination with buyers and sellers, prohibiting both these and access to the funds through agreements with a qualified intermediary. Section 1031 exchanges benefit everyone –as long as everyone follows the rules. And if you really want to understand the impact of 1031 exchanges, look around your neighborhood, your community, and your city. 1031 exchanges help build and service America.

<div class="accruit_medium_blue_color text-align-center">(Photo credit: Dollar General creates worry in small towns | | bismarcktribune.com)</div>

Metatags:

Title:

Stop the Rhetoric - Understanding the Social Impact of 1031 Exchanges on America

section 1031

05/06/21

When President Biden released his American Family Plan last week, under which Internal Revenue Code Section 1031 like-kind exchanges would be ...

Leveraging Technology in a 1031 Exchange

1031 exchange

05/01/21

The vast majority of Qualified Intermediaries processing 1031 tax deferred exchanges still rely on either a paper-based system or title software ...

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Executing a 1031 exchange properly can range from the simple to the complex depending on a variety of issues such as property type, property use, vesting and so on. To this day, however, the vast majority of Qualified Intermediaries processing <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="1031 tax deferred exchange">1031 tax deferred exchanges</a> still rely on either a paper-based system or title software modified to attempt to fit the needs of a 1031 exchange workflow. Not only do these antiquated ways of processing exchanges open customers and companies to the risk of error and broken exchanges, but also reduces efficiencies and the overall customer experience.

Accruit, as a nationally recognized Qualified Intermediary and technology company, thinks of this differently.  Building on its over 20-year history in <a href="https://www.accruit.com/property-owners/1031-exchange-explained" title="1031 exchange">1031 exchange</a> technology, Accruit developed and patented Exchange Manager Pro℠ (EMP) software initially as an internal 1031 exchange processing software to gain efficiencies, create internal controls, increase security and drive the customer experience higher.

<ul>
<li>Efficiencies: It is estimated that Exchange Manager Pro℠ from Accruit can increase the number of exchanges processed per person by 2-3x a paper-based system.</li>
<li>Internal Controls: Exchange Manager Pro℠ is built on a <a href="https://www.accruit.com/blog/1031-like-kind-exchanges-myths-vs-realitie…; title="1031 exchange rules">1031 exchange rules</a>-based system with wizards to help client service professionals process exchanges without constant oversight and feedback.</li>
<li>Security: The cloud-based software increases security through two-factor authentication, document retention and electronic signature capture.</li>
<li>Customer Experience: Users of Exchange Manager Pro℠ are capable of spending more time working with clients and less time with administrative tasks. The technology helped propel Accruit to the highest customer service score in the industry as measured by Net Promoter Scores (NPS).</li>
</ul>

Exchange Manager Pro℠ is now available externally to Title Companies, Qualified Intermediaries, Banks, Attorneys and others through Accruit’s Managed Service platform. <a href="https://www.accruit.com/blog/managed-services-powered-exchange-manager-…; title="1031 manage services">1031 Managed Services</a> clients can take advantage of either the 1031 exchange automation or licensing EMP as a 1031 software application depending on their unique needs.

Software automation clients can take advantage of the increased efficiencies of Exchange Manager Pro℠ coupled with the depth of knowledge of Accruit. For example, a title company may wish to monetize their <a href="https://www.accruit.com/blog/primer-1031-exchanges-and-related-types-ex…; title="1031 tax exchange">1031 tax exchange</a> volume, but do not want to invest in the resources and legal requirements to build their own Qualified Intermediary. Through EMP software automation, that title company can now upload necessary documents and information easily through the cloud and allow Accruit and Exchange Manager Pro℠ to process the exchange while they focus on the client and enjoy the added revenue of a new business line.

Software as a Service (SaaS) clients license the software and are able to leverage it to power their exchange operations. These customers tend to already be a Qualified Intermediary and are looking for the software to increase efficiencies, embed controls and security and increase the customer experience.

If you are interested in learning more about Exchange Manager Pro℠ or <a href="https://www.accruit.com/property-advisors/managed-services" title="Accruit's Managed Services">Accruit’s Managed Services</a> platform contact us at <a href="mailto: info@accruit.com" title="info@accruit.com">info@accruit.com</a> or <a href="tel:8002371031" tabindex="-1">(800) 237-1031</a> today!

Metatags:

Title:

Leveraging Technology in a 1031 Exchange

1031 exchange

05/01/21

The vast majority of Qualified Intermediaries processing 1031 tax deferred exchanges still rely on either a paper-based system or title software ...

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