Free 1031 Exchange Hotline: 877-471-1031

  Notes from Leonard, Your 1031 Guy

Believe it or not, some economists fear that there may be a housing shortage coming.  According to an article at CNN.com, we currently are not building enough homes to satisfy potential long term demand.  With only 672,000 new homes started in April, that represents only half the long-term run rate needed to meet the nation's natural population growth.

After analyzing the overall market,  Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies, is most worried about rental property.  He states, "Nobody is building any rental inventory".  To view the full article at CNN.com click here. 

We have seen many of our 1031 Exchange clients aggressively reposition their holdings to capitalize on what they believe will be a shortage of inventory in key markets.  Is it time you did the same?

  1031 Exchange Guidelines: Basic Guidelines for a Successful Exchange  

Over the course of the last 30 days, we taught over a dozen workshops to almost a thousand real estate professionals. One thing is clear, many have forgotten the basic guidelines for conducting a 1031 Exchange.  It's not surprising, as distressed sales and short sales seem to be occupying the time of most real estate professionals these days.  However, with the market stabilizing, many investors are looking to reposition their holding so we thought it'd be a great time to review the basics of 1031 Exchange.  The four basic requirements for a successful exchange are:

1. Property Qualifications
The internal revenue code states that the properties involved in an exchange must be held for productive use in trade or business or for investment, and they must be “like-kind”.

2. Timeline
The IRS provides a maximum of 180 days to complete an exchange. The timeline begins upon the close of escrow (COE) of the relinquished property. The new property (or properties) must be acquired on or before midnight of the 180th day. No Exceptions! 

3. Identification
Identification of all potential replacement properties is required on, or before, day 45 of the exchange. Identification must be in writing and the description of the properties must be unambiguous. The IRS provides two rules for identifying replacement property:

4. Tax Deferral
To defer 100% of the capital gains tax liability, two requirements must be met

 
Different Ways to Conduct  a 1031 Exchange 

Investors have the ability to structure 1031 exchanges in several ways. Depending on the investor's situation any of the four exchange types listed below could be a viable option:

Simultaneous Exchange
In a simultaneous exchange the relinquished property is sold and the replacement property acquired on the same day, with concurrent closings. The simultaneous exchange is rare and investors should still use an Exchange Accommodator when doing a simultaneous exchange.

Delayed Exchange
The most common method of exchanging, the delayed exchange, allows investors to sell a property and then acquire replacement property within 180 days.

Reverse Exchange
The reverse exchange allows investors to acquire replacement property prior to selling.  The reverse exchange can be more complicated however, as investors cannot own both the new replacement property and (soon to be) relinquished property at the same time. Asset Exchange Company, as an Exchange Accommodating Titleholder, will need to go on title to one of the two properties involved in the exchange. Investors considering a reverse exchange should contact Asset Exchange Company well in advance of closing on the replacement property. For more information about the reverse exchange, please call 877.471.1031 for a free consultation.

Construction/Improvement Exchange
The construction exchange allows investors to use exchange proceeds to build on land or improve an existing property. The construction/improvements exchange is often used to acquire a 'fixer' and do improvements on the existing structure. The challenge with a construction/improvement exchange lies in the fact that all exchange funds need to be spent on or before the 180th day of the exchange.

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