1031 Real Estate Exchanges and Investments

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Overview of §1031 Real Estate Exchanges

Section (§) 1031 is the IRS code that allows capital gains taxes to be deferred on a sale by moving the equity and debt of the property being sold to a new property of equal or greater value.

The current holdings can be commercial or personal real estate held for investment.

The capital gains taxes can be deferred indefinitely.

The exchanges can be done in a number of ways, in accordance with tax law:

	*Simultaneous* Exchange - the current property is sold and immediately replaced with the new holding.
	*Delayed* Exchange - more commonly, the investor sells the current property first, using the proceeds to purchase a new "in-kind" property.
	*Build-to-Suit* Exchange - occurs when the investor wishes to make improvements or repairs to the new property, but can first sell the current property (so that cash flow issues are again alleviated).
	*Reverse* *Build-to-Suit* Exchange - the opposite situation, wherein a new property is acquired before selling the old one.

Requirements for favorable tax treatment of delayed exchanges:

	The seller must NOT directly receive funds from the sale of his relinquished property.
	Properties must be held for investment or used in a business.
	"Like-kind" properties include developed or undeveloped real estate (but need not be identical in type). Properties that do not qualify include stocks and bonds, partnerships, and a variety of other investment vehicles.
	The IRS requires an investor to identify the replacement property(s) within 45 days from closing on the sale of a relinquished property, and the new property must be acquired within 180 days of this original sale.
	The IRS allows an investor to use a "Qualified Intermediary" (QI) to effect the exchange, serving in effect as an escrow agent that performs the exchange within the 180-day closing period.
	IRS code provides appropriate guidance on the methods for satisfying these rules.

Illustration of 1031 Exchange Process:

Exchanger (you)

Buyer

Qualified Intermediary (QI)

Deed to Relinquished Property

You sell your current property.

Proceeds from Sale go directly to QI.

The QI works directly with you to process the Exchange Agreements and Assignment paperwork.

QI buys your Replacement Property and provides $ directly to its seller.

Replacement Property Deed goes to you.

Identification Period [0-45 days]

Exchange and Closing Period [0-180 days]

My role as your Advisor:

I manage the process by helping you select an appropriate Qualified Intermediary (QI).

I help you select your final replacement property and work with the QI to invest in the final selection.

I help you identify appropriate replacement investment properties which meet your investment needs according to 1031/IRS regulations.

You receive the deed/title to your new investment property and begin a tax-advantaged income stream, having minimized taxes on the sale of your original property.

This is a brief summary of the concepts and principles involved in 1031 Real Estate Exchanges; there is much more that we could cover in a personal consultation. I'd welcome the opportunity to work with you on a specific plan to avoid or reduce capital gains taxes on your current investments. Call or email me directly, or submit the form on the 1031 Information page.

Mr. Birnbaum is registered in all the New England States (MA, VT, NH, ME, CT, RI), Florida (FL), Colorado (CO) and California (CA).

Tenant-in-Common and 1031 Real Estate Exchange investments are limited to accredited investors. An accredited investor is one who either:

	has a net worth of at least $1,000,000 or
	has income of at least $200,000 ($300,000 combined income if married) in each of the last two tax years with expectations to make that much in the current year.

As with any real estate investment, there are various risks including, but not limited to: loss of principal, variations in occupancy which may negatively impact cash flow, illiquidity, and limits on management control of the property.

Securities are offered through: Advisory Group Equity Services, Ltd., Member FINRA/SIPC, 161 Ash Street, Suite D, Reading, MA 01867 (781) 942-5070 . Investment advisory services are offered through Trust Advisory Group, Ltd., a Registered Investment Advisor.

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