Naples, FL Real Estate Lawyers for 1031 Exchanges
Section 1031 of the Internal Revenue Code allows for the sale of business or investment assets and the subsequent purchase of replacement assets, “of the same nature, character or class,” without immediate tax consequences. These “1031 exchanges” can provide significant tax savings and the potential for indefinite tax referral but, in order to avoid capital gains tax liability, they must be structured appropriately.
The attorneys in our real estate practice group have represented numerous clients in 1031 exchanges. We guide clients through exchanges involving real estate and personal property, and we help them secure tax deferrals in immediate, deferred and “reverse” 1031 exchanges. Our firm also serves as a qualified intermediary to facilitate tax-deferred exchanges and when necessary, we represent individual and corporate clients in communications and enforcement proceedings involving the Internal Revenue Service (IRS).
What Types of Property are Eligible for 1031 Exchanges?
Section 1031 applies to assets that are held for business or investment purposes. This includes real estate and personal property. Both the asset being sold and the asset being acquired must qualify, and the assets exchanged must be of “like kind.”
Exchanges involving domestic real estate will generally qualify as like-kind. However, the rules regarding like-kind exchanges of personal property are more complicated (for example, as noted by the IRS, “cars are not like-kind to trucks”). Additionally, certain types of personal property are ineligible for 1031 exchanges, including:
- Stocks, bonds and other securities
- Partnership interests
- Certificates of trust
What are the Timing Requirements for 1031 Exchanges?
A 1031 exchange can be conducted simultaneously, with deferred acquisition of the replacement property, or with the replacement property being acquired prior to disposition of the appreciated asset (referred to as a “reverse” exchange). Deferred and reverse 1031 exchanges are each subject to specific time restrictions and other qualifying conditions.
For deferred 1031 exchanges, the replacement property must be identified within 45 days of the disposition of the appreciated asset. This identification must be made to the seller or a qualified intermediary. The replacement property must then be acquired within 180 days of the disposition or the due date for the tax return on which the deferred gain must be reported, whichever comes first.
For reverse 1031 exchanges, the appreciated asset must be sold within 180 days of the acquisition of the replacement property. During this “parking period,” the replacement asset must be held by an exchange accommodation titleholder.
How are 1031 Exchanges Reported to the IRS?
All 1031 exchanges must be reported to the IRS on Form 8824. This form must be filed with your return for the tax year in which you conducted the exchange, and it must state the adjusted basis for the appreciated asset as well as the amount of gain to be deferred. Due to the complexities involved in 1031 exchanges and the potential implications of improper reporting to the IRS, it is advisable to work with an experienced attorney.
Contact Woods, Weidenmiller, Michetti & Rudnick, PLLC in Naples, FL
If you would like to speak with an attorney about securing tax-deferred treatment for a 1031 exchange, we encourage you to contact us for a confidential initial consultation. To schedule an appointment at our offices in Naples, FL, please call 239-325-4070 or inquire online today.