1031 Exchange Strategies and Structures
1031 Exchanges in greater detail:
Over the years, 1031 exchanges have evolved to include numerous real estate and tax strategies and structures. Real estate investors retain our services to ensure that they are maximizing their benefits from both a real estate and a tax perspective – they understand how crucial it is to hire 1031 exchange professionals who are experienced and proficient in both areas.
The real estate and tax attorneys at Moskowitz, LLP don’t handle only straightforward 1031 exchanges. We can assist you with the full range 1031 exchange tax deferral and tax exclusion strategies and structures.
There are a wide variety of 1031 exchanges, including:
Simultaneous, delayed and reverse exchanges
Historically, the exchange of properties always occurred on the same day. Following the Starker decision in 1979, however, “delayed exchanges” became the norm. Now the purchase of replacement properties generally take place sometime after the relinquished property’s closing.
A “reverse exchange” occurs when a replacement property is purchased and closed on before the relinquished property is sold. This permits an investor with the financial resources to purchase a new property to benefit from the delayed sale of their relinquished property and take advantage of the ups and downs of the real estate market.
The benefits of IRC 1031 can also be utilized when improvements are made on a replacement property before it is received. Improvements may consist of repairs or of entirely new construction. To benefit from tax-deferred treatment, all improvements must be completed within the 180-day limitation or the investor risks being faced with new property that is not of the same or greater value than the relinquished property – and with building materials that may be classified as “boot” subject to immediate taxation.
1031 exchanges involving partnerships
Most 1031 exchanges nowadays involve partners that hold property jointly. It is not uncommon for a partner to want to dissolve their interest in a property held by the partnership. However, buying out that partner runs the risk of triggering substantial tax liabilities. There are a few options available to partnerships in cases where the partners’ respective interests diverge:
- Drop and swap. This involves the liquidation of the partnership interest in the property, which is then converted into an interest in the property as tenant-in-common with the partnership. The property is then sold, with each partner (and former partner) choosing whether or not to move forward with a 1031 exchange.
- Swap and drop. A “swap and drop” is the reverse of a “drop and swap.” The partnership completes an exchange and then distributes its interest in the replacement property to the exiting partner.
- Split-off. With a split-off, the partnership provides the departing partner with title as tenant-in-common, and the rest of the partners complete a 1031 exchange as a partnership. The departing partner can then cash out or exchange their tenant-in-common interest in the property.
Other 1031 exchange options
Other advanced 1031 exchange techniques utilized by our office include:
- combining reverse and improvement 1031 exchanges
- reverse and forward exchanges
- using promissory/purchase installment notes as like-kind replacement property
We also provide expert representation with all types of tax audits, including audits in connection with 1031 exchanges.
1031 Exchange Lawyers in San Francisco
The tax professionals at Moskowitz, LLP can help you facilitate a successful 1031 exchange. Contact our California real estate and tax attorneys at (888) 829-3325 or (415) 394-7200.