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By ETHEL WEBB, for 1031illinois.com 8/15/2007

Within five days from when the EAT takes title to the property, you must enter into a Qualified Exchange Accommodation Agreement (QEAA) with the EAT.NNN: NNN properties often are leased to only a single tenant. Potential duplicate transfer taxes, duplicate title insurance premiums and other transaction expenses may make an alternative structure more attractive. The Qualified Intermediary must be assigned prior to the completion of the first sale, so that he can receive the funds when the sale is closed.Although the aircraft exchange process itself is fairly straight forward, the detail required in documenting such a transaction has very specific guidelines and timeframes established by the Internal Revenue Code 1031. Where a taxpayer wishes to construct improvements on the replacement property as part of the exchange, the 180-day period is frequently inadequate to complete the construction.The QI holds the proceeds from the sale of the relinquished property beyond the actual or constructive control of the Exchangor. This also includes purchasing royalty and working interest oil and gas programs. Congress closed this loophole in 2004.

What to ignore

The rules for properly doing a 1031 exchange are complex.The properties below are provided to satisfy 1031 exchange requirements. That is, if the husband has owned and used the house as his principal residence for two of the past five years, but his wife did not use the house as her principal residence for the required two years, then the exclusion is only $250,000. If they tire of the snow, they can sell the condo in two years (pocket up to $500,000 in gain again), and head to another property. There is no penalty if you change your mind about doing a 1031 exchange after engaging a QI or if you do not meet the 45/180 day requirements. At the property level, the returns to EREITs and private sector or non-securitized investors may differ substantially. Due to depletion of the reserves, it is necessary to locate properties with cash flow equal to two-to-three-times the annual cash flow from real estate assets.

Illinois 1031 Exchange history

Generally, if you dispose of your replacement property within two years of acquiring it from a related party, you must pay the taxes that you previously deferred. It is critical that the Exchanger receive improvements/replacement property that are/is substantially the same as the improvements/replacement property identified.Even the simplest matter dealing with the Internal Revenue is going to be complex. The sale of every property is a potential tax event with the tax consequence being realized after the closing of the property. REIT returns tend to be higher in January, on Friday, on turn-of-the-month trading days, and on pre-holiday trading days. Therefore, we typically recommend our clients to retain the top firms in this field that act as Qualified Intermediaries regularly so that the transactions are documented properly with the latest revisions, if any, to the 1031 Code. This tax bill will act as a safety net to save many of these wells, thereby reducing our reliance on the Middle East.

Examining the contract

The sale of the relinquished property and the acquisition of the replacement property do not have to be simultaneous. First the individual taking advantage of the exchange has more buying power because the taxes normally associated with a sale are deferred. This site will attempt to give you as much information as possible to make your our choices and carry out your own business. Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. This creates a taxable event. A non-simultaneous exchange is sometimes called a Starker Tax Deferred Exchange named for an investor who challenged and won a case against the IRS.

What to attend to

Tax deferred exchanges are not difficult, but you do need expert help. They would then identify their replacement property (as part of the deferred 1031 exchange) as the newly constructed property being held by the EAT.In addition, the debt on the new property must be greater than the debt on the old property or the amount of equity in the new property must be greater than the equity in the old property.To qualify for the full exclusion, either married spouse can meet the ownership requirement, but both must meet the use requirement. The IRS wants to encourage investors to invest in and fix up old or rundown buildings that likely would continue to deteriorate otherwise. The term royalties can be used interchangeably to mean mineral interests, royalty interests, or overriding royalty interests. By combining the benefits of Sections 1031 and 121, the Investor is in a sense creating the best of both tax worlds on single-use property: creating a tax-free sale as opposed to a tax-deferred exchange. In fact, you can hire a property manager and still actively participate by doing such simple things as approving the terms of the lease contracts, tenants, and expenditures for maintenance and improvements on the building. Taxpayers usually take the position that loan acquisition costs are being paid out of the proceeds of the loan. Specifically, six pairs of equity REITs grouped as having predominantly apartment, industrial, office and retail properties in their portfolios were examined for correlations of rolling sixty-month returns.

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