What
Is a "Like-Kind Exchange"?
What Is a "Like-Kind Exchange"?
Upon selling, exchanging,
or otherwise disposing
of investment or rental
property, the transferring
party will usually trigger
federal and state capital
gain and depreciation
recapture taxes which
will reduce the proceeds
which the transferring
party has available to
reinvest. Section 1031
of the Internal Revenue
Code ("IRC 1031" or just
"1031") allows taxpayers
to dispose of qualifying
real or personal property,
while avoiding the federal
and state income tax and
depreciation recapture
which would ordinarily
be charged at that time.
Also, the transferring
party is able to purchase
replacement property equal
to or greater than the
current value of the property
which he/she/it is exchanging,
thus recognizing (but
not "realizing" for income
tax purposes) the gain
in value his exchanged
property has had.
Among the types of real
property that are eligible
for 1031 like-kind exchanges
treatment are raw land,
single family homes, hotels,
multi-family dwellings,
factories, commercial
office buildings, shopping
centers, farm land, leases
of 30 years or more, quarries,
and oil fields. In general,
real estate being used
for one purpose may be
traded for real estate
being used for the same
or a different purpose,
as long as each qualifies
as investment or rental
property.
Tax-advantaged "like-kind"
exchanges of personal
properties can also be
done, however, are the
rules are more restrictive
than those applicable
to real property. Aircraft,
automobiles, trucks, office
equipment, furniture,
machinery, computers,
musical instruments, billboard,
franchise licenses, television
licenses, copy rights,
collectibles, and oil
and gas fueling equipment
are examples of personal
property that qualifies
for 1031 like-kind exchange
treatment.
Need for a "Qualified
Intermediary".
In many situations, the
parties wishing to carry
out a 1031 like-kind exchange
must use a "qualified
intermediary" to facilitate
the combination of transactions
which are necessary to
obtain the tax benefits
thereof. Furthermore,
the Code specifies that
the qualified intermediary
must be an "independent
entity" who is not an
exchanging party, an agent
of the exchanging party
(such as his/her/its attorney,
accountant, investment
counselor, or financial
planner), or a personal
entity related to the
exchanging party.
Services Available from
this Firm.
Mr. Bergmann has established
a limited liability company-MJB
EXCHANGE SERVICES, LLC
("MJB EXCHANGE")-- to
serve as the qualified
intermediary to facilitate
like-kind exchange transactions.
As the qualified intermediary,
MJB EXCHANGE does the
following:
•
Prepares the documents necessary
for the completion
of the exchanging parties'
like-kind exchange,
including the Like Kind
Exchange Agreement,
the Qualified Escrow Account
Agreement, Assignment,
Acceptance, Notice, and
Direction to
Convey;
• Establishes a segregated,
qualified escrow account
in which exchange
funds are held; (Those
funds
are protected
from the exchanging party's
creditors
at no additional cost
to the
exchanging
party.)
• Obtains and reviews
closing-related documents
pertaining to
the sale and purchase;
• Provides the exchanging
party with an Identification
of Replacement Property
form (which must
be completed as a part of
the process); and
• Monitors the time
limits for the completion
of the like-kind
exchange to make sure that
the exchanging
parties comply with the
strict deadlines required
by the U.S. Treasury's Like-Kind
Exchange Regulations.
MJB EXCHANGE typically becomes
involved either just before
or as soon as the Sale Agreement
have been signed the exchanging
party and the buyer of the
property which he/she/it
is relinquishing.
Fees for Different Types
of Like-Kind Exchanges.
The fees and cost involved
with a like-kind exchange
may vary depending on whether
the exchanging party is
completing a simultaneous
or delayed ("traditional")
1031 exchange, a reverse
1031 exchange, a build-to-suit/improvement
1031 exchange, or a personal
property 1031 exchange.
A "simultaneous exchange"
is the exchange for the
relinquished for the replacement
property in one transaction,
occurring at the same time.
A "delayed exchange" is
the most common type of
exchange. It occurs when
there is a time gap between
the transfer of the relinquished
property and the acquisition
of the replacement property.
(A delayed exchange is subject
to strict time limits which
are set forth in the applicable
Treasury Regulations.) A
"build-to-suit" (improvement
or construction) exchange
is a technique which allows
the tax payer to build on
or make improvements to
the replacement property
using the exchange proceeds.
A "reverse exchange" is
a situation in which the
replacement property is
acquired prior to the transfer
of the relinquished property.
For simultaneous and many
delayed exchanges, Mr. Bergmann
charges a flat fee of $780.00.
Flat fee quotes for other
types of like-kind exchanges
are available upon request.
MJB EXCHANGE SERVICES, LLC
would welcome the opportunity
to assist the parties in
any real or personal property
like-kind exchange with
their transactional needs.
|
