Where does the IRS stand in 1031 Tax Exchanges?

  Many people can take advantage of the 1031 tax exchange. It is however, only available after you have sold one property and buy the second in a certain time period. Reverse 1031 tax exchange comes into picture when you want to purchase the new property first and then sell out the original property.

   The IRS has declared its stand on reverse 1031 tax exchange in the Revenue Procedure 2000-27. The said procedure was declared in September 2000. The document introduced a "Safe Harbor" in the form of Exchange Accommodation Titleholder or an EAT. It acts as a parking lot which would hold the title of property you purchased until you do not sell out the old property.

   1031 exchanges require you complete the merge within a time period. This time period is limited to 180 days from the purchase of new property. Moreover you are required to identify the old property within first 45 days of the 180 days that are mentioned above.

  Please consider that the IRS does not provide this safe harbor to all types of properties. There is a Non Safe Harbor reverse exchange which does not come with the 180 days clause. Typically this is a new construction type of exchange. Such an exchange would take more time for completion and therefore it can not be treated using the generalized clauses.

•    The first stage here is purchase - contract stage.

  This is the stage where you have to work out the purchase procedure of new property. You must include the tax deferred exchange related clauses in your contract. Selection of the company which would hold the escrow is also required at this stage.

•   This is followed by a purchase - financing stage.

  You may be required to act as the guarantor of the loan. An assumption clause also comes into the picture.

• Then the purchase of the property - closing stage.

 You have to finalize the deal via a Qualified Intermediary. This is what Cooney and Associates, Inc can do for you.  We will be  provided with all the necessary documentation. After this the property is transferred to EAT and money is given to property seller.

  Following this you would be required to identify the property that you would sell. This must be done within 45 days from the date on which the deeds of property were drawn.

•  The next stage if that of sale - contract.

 This is the closing of the sale of your property.  It must be done within 180 days including the 45 days mentioned earlier. Finally you can get the property transferred from EAT to your own name after notifying the appropriate authorities.

If you have a property you would like to sell in regards to a 1031 tax exchange, give our offices a call today. We can help work through all the details and define any necessary issues along the way.