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From our Referral Partner IPX Exchange 1031 News

Happy 1031? IPX1031


NO TRICK: A Treat for Unsuccessful 1031 Exchanges!

A treat from the IRS? Taxpayers should not be spooked if they are unable to complete their 1031 Exchanges. A treat may exist for a calendar-year taxpayer who initiates a 1031 tax-deferred exchange during the last few months of this year only to find that the exchange fails (they are unable to purchase new replacement property within the time periods set forth in Section 1031). Since the exchange period will go into 2018, the IRS provides an option called “tax straddling” which allows most taxpayers to pay the tax that is due on their 2018 return as opposed to their 2017 return.

Of course the major benefit for a taxpayer who successfully completes a 1031 Exchange is 100% deferral of taxes and the ability to invest all of their equity into new property. Unfortunately, if a taxpayer is not able to purchase new property to successfully complete the 1031 Exchange, the taxes associated with the sale of their investment property will be due. However due to “tax straddling” the taxpayer may receive a one year tax payment deferral thanks to the coordination between IRC §453 and §1031 provided in the §1031 regulations.

How does this work? If a delayed 1031 exchange begins in the latter portion of 2017, the exchange period may run into 2018. If the exchange fails or if the taxpayer (having a bona fide intent to do an exchange) receives cash boot in 2018, the 1031 regulations treat the exchange as an installment sale allowing the taxpayer to consider that the exchange proceeds were received (and are taxable) in 2018.

However, if a taxpayer prefers to pay their taxes as soon as possible, in accordance with IRC section 453 (d) a taxpayer may “elect out” of the installment method. By electing out, the taxpayer can recognize the gain in 2017 instead of 2018. To elect out, the sale should be reported on Form 8949, Form 4797 (or both) and not on Form 6252. The election must be made by the due date, including extensions, for filing the 2017 tax return. For more information about the procedure and forms to use, see IRS Publication 537 and consult with your tax advisor. Additionally, tax straddling does not apply to all sales and any gain attributed to debt relief will have to be recognized in the year of sale.

The IRS does not penalize investors for attempting to complete a 1031 Exchange. Tax straddling provides an added incentive to taxpayers selling investment property at the end of the year. Why not attempt to complete a 1031 Exchange when a one year payment deferral is available as the back-up plan?

Please call us at IPX1031 to discuss tax straddling and other valuable tax-deferral solutions. Be sure to consult with your tax advisor before participating in a 1031 exchange.

Commercial and Residential real estate transactions-WIRE FRAUD!!!!

Commercial and Residential real estate transactions have become a focal point for hackers to access emails and steal information, which leads to stealing money.

 

These thieves hack into escrow participant’s email accounts to obtain information about upcoming real estate transactions. Once in they see information from brokers, attorneys, lenders and title companies. They will monitor the email account to determine about when the closing is scheduled and then alter original documents from the participants to change the closing and/or where the closing funds are to be wired.

 

The Buyer will get altered documents telling them there has been some kind of bank problem and they are now asking them to wire their closing funds to a new account. The Buyer is the only one that sees this email, even though this altered document originally could come from their attorney, broker, lender or title company. Unless the Buyer calls their title company to verify the wiring instructions there is no way to protect them or recover their money once it has been send to the thieves.

 

INQUIRE BEFORE YOU WIRE for any real estate transaction YOU are involved with. You could make the difference between a successful closing or a terrible loss.

 

Please let me know if you have any questions.

Notes from the Certified Public Accountant

If you decide to invest in real estate, particularly if for residential or commercial rental use, you have essentially gone into business and there are many tax benefits to owning such a business.

First, it is important to consider all of the possible forms of ownership and the tax benefits of each. You can own a business as any of the following:

  • Sole Proprietorship
  • Partnership
  • Limited Liability Company (LLC)
  • C-Corporation
  • S-Corporation

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