1031 Checklist

[   ]   1031 is an   Incentive—not a loophole.  It’s a tax incentive for owners of certain real estate to exchange it for other such property to    encourage the re-investment   to expand the market, stimulate the economy and create jobs.

[   ]   What kind of property    does the IRS target?  They call it    Like-Kind       in the sense only that they must be   held primarily for business or investment purposes—not principal residences or personal vacation homes.

[   ]   Your   incentive is to defer the tax.  If you SELL real estate, you will pay tax on capital gain (the gain you realize). But    under 1031 your gain on the property you give up is not recognized—it is    deferred   until and unless you later SELL what you got in exchange.

[   ]   How do you benefit?   If your tax for a SALE would have been    $20,000, for example,    that would be deferred with a 1031  so    you would not have to pay it now. But    you'd have to pay in 5 or 10 years if you SELL the replacement    (by then a tank of gas might cost $1,000).    But if you’d done another 1031 instead of a sale, it would   defer the tax indefinitely. Meanwhile    you’ll have   $20,000 extra to invest  in    better replacement property  that will    produce more income  and will    appreciate more with leverage.

[   ]   Make two contracts into one exchange.  You have    one contract to sell  to a buyer    and another to buy  from a different seller. You can    sign an agreement with an       intermediary  for you    to exchange what you will give up for what you want to get in return. You    assign both contracts  to the intermediary. The    intermediary will sell    to your buyer,    park  (escrow)    the sale proceeds, then    buy the replacement    from your seller.    You do not touch the money. Your deed goes directly to buyer and seller's deed goes to you—the    intermediary is in neither chain of title. You will   report  the completed exchange    to the IRS.

[   ]   You want cash out to boot?  If you get cash (or    anything other than like-kind property) out of the exchange (it’s called    boot) you’ll owe    tax only on the boot  in such a    partial    1031exchange.    To avoid boot  you must, (1)    get replacement property for not less than the sale price of the relinquished property  AND (2)    spend all of the sale proceeds in your exchange account.

[   ]   Try different scenarios    with your own numbers  on our website (see    CALCULATE YOUR OWN TAX ESTIMATES  below). Always consult your tax and legal advisers.

[   ]  Must be a qualified exchange. You must have an expertly crafted exchange agreement  with,"Mutually Dependent Parts of an Integrated Transaction”  drafted by your Qualified Intermediary (and not by you, your attorney or your real estate agent).

[ ] Title to the property you get must be registered in the Same Name(s) as what You gave up in order to be an exchange—otherwise the IRS could call it a sale.

[ ] When Financing a Replacement Property, it's generally easier to secure a loan if the property is titled in your individual name rather than in an entity's name, such as an LLC or corporation. Therefore, if your Relinquished Property (the one you're selling) is currently held by an LLC, you might consider transferring its title to your individual name before the exchange. This way, the Replacement Property can be acquired in your personal name, simplifying the financing process.

[  ]    Must have a    qualified   intermediary    (called a    QI).    An IRS release reads,

"You can not act as your own Facilitator. In addition, your Real Estate Agent or Broker, Investment Banker, Broker, Accountant, Attorney, Employee or anyone who has worked for you in those capacities within the previous two years, can NOT act as your Facilitator."

Your qualified intermediary (QI) holds the funds that you may not touch, so the QI    must be independent—not “related” to you, otherwise, you would have “constructive possession” of the funds touched by "your agent" and disqualify the exchange. So,    your QI may not give you legal or tax advice—use other advisors.

[   ]    Must have    qualified   like-kind properties. Both properties exchanged must be of “like-kind”    in the sense only   that they are “held primarily for Productive Use in a Trade or Business or for Investment". They are    disqualified    as non-like-kind    if either is held for personal use    (like your principal residence or personal vacation home used more than 2-weeks per year). And    dealer properties are not qualified    (as inventory for sale, they are not held for business or investment purposes).

Properties of    different types might be qualified as like-kind    provided they are    both being held primarily for trade, business, or investment, for example: a Rent house, Office Building, Retail Shop, Warehouse, Chemical Refinery, Apartment Complex, or any type of Unimproved Land    held for business/investment    can qualify.    And although they may be very dissimilar, the exchange of a Chicken Farm for a Train Station    can qualify as a like-kind property.

Properties of the    same type might be disqualified as like-kind    when they are    not both being held primarily for trade, business, or investment. So, a rent house will not be like-kind with your own identical home because your principal residence cannot qualify. If you own two Identical vacation homes but use one personally more than two-weeks in a year, the IRS says that one is your    personal vacation home    and    would be disqualified.

The IRS looks at the "present use" of the Relinquished Property and your "present intended use" of Replacement Property to see if both meet the "like-kind" test.

[  ]    Must be    real estate    to qualify: So, things like timber or mineral rights, being "real property interests" may qualify. But the following examples are not: stocks, bonds, cash, or your interest in an entity that may own real estate like a REIT are not qualified.

[  ]    Must be    United States    property    to qualify: Only property that is situated within the U.S. and the U.S. Virgin Islands is eligible.

[   ]    Must be    properly   identified    properties to qualify:  You must properly identify both properties under 1031 or the exchange will be disqualified.

[   ]    Must be    timely identified    properties to qualify, the    45-day Rule:  You must ID the replacement property    within 45-days of the closing date of the relinquished property sale. The ID Rules permit you to timely identify 3 properties and you may acquire any 1, 2 or all 3.

[  ]    Must be    timely acquired    properties, the    180-day Rule: You must complete the exchange    within 180-days of the closing date of the relinquished property sale    or the exchange will be disqualified. [Note that both times start on the sale closing date, you do not get 180 plus 45 days.]

[  ]    Must comply with    Related Parties Rules: Exchangers    must disclose    to the IRS    if any related parties were parties to the exchange. There are special rules for such exchanges and    an abusive shift of tax basis    between related parties resulting in tax avoidance    could disqualify the exchange.

[   ]    Must follow    qualified procedure. You must work with an experienced and qualified Intermediary so as to properly "facilitate" the procedure because,    you may not control ANY of the proceeds or property given in exchange before the exchange is completed. For example, if a check is Issued to you and even if you immediately endorse It over to your QI, your "constructive possession" may cause the 1031 exchange to fail. IRS guidelines state:

"IT IS IMPORTANT TO KNOW THAT TAKING CONTROL OF CASH OR OTHER PROCEEDS BEFORE THE EXCHANGE IS COMPLETE MAY DISQUALIFY THE ENTIRE TRANSACTION FROM QUALIFYING AS A 'LIKE-KIND' EXCHANGE TREATMENT, AND, MAKE ALL GAIN IMMEDIATELY TAXABLE.

 IF CASH OR OTHER PROCEEDS THAT ARE NOT 'LIKE-KIND' PROPERTY ARE RECEIVED AT THE CONCLUSION OF THE EXCHANGE, THE TRANSACTION WILL STILL QUALIFY AS A 'LIKE-KIND' EXCHANGE. GAINS MAY BE TAXABLE, BUT ONLY TO THE EXTENT OF THE PROCEEDS THAT ARE NOT 'LIKE-KIND' PROPERTY."

So, the best way to avoid premature receipt of cash, or other proceeds is to    work with an IRS qualified intermediary such as    The 1031 Exchange Center—we only do...1031 Exchanges. Click    Non-Binding Inquiry    to start.

[  ]    Must    report     the 1031. You must file an    IRS Form 8824    "on time" in order to be In legal compliance and to   register the exchange    with the IRS, to    declare the taxable boot    you may have received, and to    properly transfer your tax basis    from your relinquished property to the replacement property.