The safe harbor is structured so as to reduce transaction costs, and the IRS's stated intent was to "provide taxpayers with a workable means of qualifying their transactions under IRG section 1031 in situations where the taxpayer has a genuine intent to accomplish a like-kind exchange at the time it arranges for the acquisition of the replacement property
(not the mutual intent of all parties as required in the recent TAM) and actually accomplishes the exchange within a short time thereafter.
1), 14(6), 14(7), 44(1), and 44(5) would add an intention test to the replacement property
The original intent of Section 1031 was to defray tax on businesses and investors alike whose main purpose was to continue their investment by acquiring similar replacement property
In the recent release, the IRS informed us that a taxpayer could acquire replacement property
from a related party in a 1031 Tax-deferred Exchange, if the related party is also doing a 1031 exchange.
On September 15, 2000, the Internal Revenue Service released Revenue Procedure 2000-37 that provided guidelines for structuring reverse exchanges (a transaction in which replacement property
is acquired by an accommodating party before the sale of the relinquished property and held as replacement property
to complete the exchange).
Moreover, deferral of tax on the gain results in a limited basis in the qualified replacement property
, which, in turn, limits the amount of depreciation deductions available to the taxpayer on the qualified replacement property
over its cost recovery period.
I was told I needed to identify the replacement property
within 45 days and close on the replacement property
within 180 days.
In its decision, the Tax Court rejected the IRS's position that a third-party "exchange facilitator" the taxpayer engaged to take legal tide to the replacement property
was required to assume the benefits and burdens of ownership of the property to facilitate a valid Sec.
there must be an exchange of the original asset with the replacement property
The key requirement is that the replacement property
into which the money is invested be "like-kind.
While the typical 1031 Exchange involves the investor selling their Relinquished Property before closing on the purchase of their Replacement Property
, it is possible to close on the Replacement Property
2) The property that the taxpayer transfers is usually referred to as relinquished property, and the property received is referred to as replacement property
Deferred transactions may qualify as like-kind exchanges if they are completed by the earlier of the due date of the tax return for the tax year in which the transfer of the relinquished property occurs or 180 days after such transfer.