Dealing with Seller Financing in a 1031 Exchange…

Investors who decide to carry a  note on the sale of their investment property have a few options  if they are also doing a 1031 Exchange.

1. Do not include the note in the exchange. If the note is not included in the exchange, taxes will be payable using the installment method of accounting.
2. Include the note in the exchange and defer taxes owed.

With option #2, investors have several alternatives for attempting to use the note as part of the exchange. It is important that Asset Exchange Company be named as the beneficiary of the note in order to avoid any constructive receipt issues.  The alternatives available include:

1. Use the note as consideration for the replacement property.
2. Replace the note with cash.

•     “Buy” the note with your own cash
•      Sell the note on the secondary market
•     Have the note paid off prior to close of escrow

Seller financing can be an attractive option in today’s market.

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My friend at Asset Exchange Company send me some interesting update that I thought you might be iterested in. They offer $499 Delayed Exchange Services and a Free 1031 Exchange Hotline: 877-471-1031 .

IRS Scrutiny into 1031 Exchanges…

If you are considering conducting a 1031 Exchange, make sure you work with Asset Exchange Company to ensure it is done right. The IRS is planning on increasing audits and enforcement of 1031 Exchanges by summer of 2008. 

In a report issued last month, the Treasure inspector general for tax administration wrote: “There appears to be little IRS oversight of the capital gains (or losses) deferred through like-kind exchanges.”  The inspector general made three specific recommendations, all of which have been accepted by the IRS:

• The IRS should study tax reporting and compliance issues involved with like-kind exchanges. The IRS agreed to conduct research and complete the work by Aug. 15, 2008. Based on the outcome of this research, it appears likely that exchanges that take place this year will receive greater scrutiny.
• The IRS should provide better information and guidance to taxpayers on how to conduct a proper 1031 exchange. The IRS has agreed that by Jan. 15, 2008, it will provide more information on a number of publications and forms to help taxpayers understand how the exchange process works. Specifically, Publication 17, Your Federal Income Tax will be updated to specifically remind taxpayers that they must file Form 8824 with their returns if they have been involved in 1031 exchanges in the previous year.
• The IRS must provide clear guidance to taxpayers on the rules and regulations of like-kind exchanges with respect to second homes that were not used exclusively by owners.

http://www.realtoramir.com/

For instant MLS search click here. 

For an automated MLS search click here. 

The information being provided is for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing.

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