Like-kind Exchanges of Real Estate (Section 1031)
Hammond, Indiana, Like-kind Exchanges of Real Estate (Section 1031) Lawyers
Like-kind Exchanges of Real Estate in Indiana
Like-kind exchanges, often referred to as 1031 Exchanges, are a complex method of use to minimize taxes on the transfer of commercial property. At Efron & Efron, in Hammond, Indiana, our commercial real estate attorneys have extensive experience guiding clients through 1031 like-kind exchanges.
Knowledgeable Indiana Commercial Real Estate Lawyers
A "1031 exchange" refers to a method of deferring tax on the sale of an interest in real property allowed under section 1031 of the Internal Revenue Code. In brief, it allows a seller to defer tax on a gain that would otherwise be realized on a sale of property if the proceeds from the sale were reinvested in like-kind property. It's quite common for a 1031 exchange to be involved in some manner in a commercial real estate transaction. A seller must contractually arrange to convey his or her interest in the property being sold in exchange for receiving an interest in another piece of commercial property. If cash is involved, an escrow company or facilitator usually holds the funds, because treatment under section 1031 will not be possible if the proceeds are paid to the seller even for an instant. In practice, however, the rules for a 1031 exchange can be quite complex and it is easy for a seller to run afoul of them. It is always advisable to have competent legal counsel and a qualified accountant.
Common Questions about Like Kind Exchanges or 1031 Exchanges
What is a 1031 - Like Kind Exchange?
A 1031 - Like-Kind Exchange is a tax deferred exchange transaction under section 1031 of the Internal Revenue Code. This section allows for the sale of certain types of real and personal property with the deferral of payment of capital gains tax at that point. The key is the language in the code which states: "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment purposes if such property is exchanged solely for property of a like-kind which is to be held for either productive use in trade or business or for investment purposes." This means that you must chose replacement property which is "like-kind" and you (the investor) cannot receive any "boot" (cash or other benefits) at the closing.
What is an "Exchanger?"
An "Exchanger" is the investor in the exchange transaction. The Exchanger will be both selling the "Relinquished Property" and acquiring the "Replacement Property."
What is a "Qualified Intermediary?"
A "Qualified Intermediary" is a party to a "deferred" or a "reverse" exchange transaction. The selection of a Qualified Intermediary is an essential part of the transaction.. It is extremely important that the Qualified Intermediary be familiar with the requirements of the 1031 process and the pitfalls that may be faced. The security of the proceeds are of the utmost concern. A good Qualified Intermediary will be experienced in 1031 transactions and have the financial resources and backing to be there when you need them.
How can a 1031 work to my benefit?
Under section 1031 you may be able to sell property and replace it with property of "like kind" without having to pay tax on the gain. This can be extremely beneficial by allowing the leveraging of all of your gain in a real estate transaction. This means that all of your gain may be used in the purchase of the replacement property.
What is a "Delayed Exchange?"
A "Delayed Exchange" means that the relinquished property will be disposed of with some delay between that event and the acquisition of the replacement property. This period of time between the original sale and the acquisition of the replacement property is subject to strict rules imposed by the Internal Revenue Service. If the rules are not followed the "exchange will fail and the tax will not be deferred.
What are the time limits in a delayed exchange transaction?
Upon the sale of the relinquished property the exchanger will, generally have forty five (45) days to identify potential replacement property and one hundred eighty (180) days to complete the exchange transaction. Both of these time limits are from the date of the sale of the relinquished property. These are not all of the time rules involved in the delayed exchange transaction. We will be happy to discuss these requirements with you.
Can the exchanger hold the proceeds during the delayed period?
No, the exchanger cannot hold the funds during the delayed period. The exchanger also cannot be in constructive receipt of those funds. The proceeds of the sale of the relinquished property will be parked with a "Qualified Intermediary" until the acquisition of the replacement property.
Contact our Indiana Real Estate Attorneys
If you have any questions about 1031 like-kind exchanges, please contact the Indiana real estate lawyers at Efron & Efron. Our attorneys can be reached by phone at  931-5380, by e-mail, or by filling out the intake form on our Contact Us page.