Straight Forward Exchanges
When a taxpayer is able to sell their relinquished property (the property they are selling) BEFORE they close on their new replacement property, Midwest 1031 serves as the Qualified Intermediary.
The prevailing idea behind the 1031 Exchange is that since the taxpayer is merely exchanging one property for another property (ies) of “like-kind” there is nothing received by the taxpayer that can be used to pay taxes.
Additionally, the taxpayer has a continuity of investment by replacing the old property. All gain is still locked up in the exchanged property, therefore no gain or loss is "recognized" or claimed for income tax purposes.
Most 1031 Exchanges are Straight Forward, meaning the taxpayer first sells their property, then purchases a replacement property
within the time limits and procedures specified by the Internal Revenue Code.
The prevailing idea behind the 1031 Exchange is that since the taxpayer is merely exchanging one property for another property (ies) of “like-kind” there is nothing received by the taxpayer that can be used to pay taxes.
Additionally, the taxpayer has a continuity of investment by replacing the old property. All gain is still locked up in the exchanged property, therefore no gain or loss is "recognized" or claimed for income tax purposes.
Most 1031 Exchanges are Straight Forward, meaning the taxpayer first sells their property, then purchases a replacement property
within the time limits and procedures specified by the Internal Revenue Code.
Reverse Exchanges
This type of exchange is utilized when the taxpayer must close on their replacement property BEFORE they can close on the property they are selling. Since October of 2000, the IRS has provided a corollary "safe-harbor" provision allowing tax deferral in this situation.
Under the safe harbor, a specially created entity takes title to either the taxpayer's relinquished property OR to the newly acquired replacement property. The special entity is called an "Exchange Accommodation Titleholder". To qualify for the safe harbor protection the taxpayer's original property must be closed no later than 180 days after the replacement property is acquired.
Taxpayers can go outside of the safe harbor provisions and attempt to complete a reverse exchange. Usually this is done when the relinquished property cannot be sold within the 180 day time limit, referenced above. Midwest 1031 is very experienced in both types of reverse exchanges.
Under the safe harbor, a specially created entity takes title to either the taxpayer's relinquished property OR to the newly acquired replacement property. The special entity is called an "Exchange Accommodation Titleholder". To qualify for the safe harbor protection the taxpayer's original property must be closed no later than 180 days after the replacement property is acquired.
Taxpayers can go outside of the safe harbor provisions and attempt to complete a reverse exchange. Usually this is done when the relinquished property cannot be sold within the 180 day time limit, referenced above. Midwest 1031 is very experienced in both types of reverse exchanges.
"Build to Suit" Exchanges
Sometimes taxpayers desire to use equity from the sale of their relinquished property to build improvements or make changes to a replacement property they have identified. This is still a "Straight-Forward" exchange in process, but the new replacement property has to be "parked" by the Qualified Intermediary until the improvements are completed.
The improvements MUST be completed within the 180 days exchange period. This means timing and planning are of paramount of importance.
Midwest 1031 will work with the taxpayer to make sure timely disbursements are made to fund the improvements, as well as ensuring proper lien waiver protection is implemented.
The improvements MUST be completed within the 180 days exchange period. This means timing and planning are of paramount of importance.
Midwest 1031 will work with the taxpayer to make sure timely disbursements are made to fund the improvements, as well as ensuring proper lien waiver protection is implemented.
