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The basics of a 1031 exchange are that the investor must identify the properly (could be multiple) that it intends to purchase within 45 days from the date of the sale of its investment property (relinquished property) and close on that property (replacement property) within 180 days from the date of the sale of the relinquished property.
The exchangor cannot, however, have access to the cash during the period between the sale of the relinquished property and the acquisition of the replacement property; otherwise, the exchangor will violate the like-kind clause.
Instead, the basis of the newly acquired asset is adjusted to the amount of the basis of the relinquished property, decreased by any money the taxpayer might have received as well as by the amount of gain or loss that was created by the exchange.
Since the replacement property (Vineyard B) has depreciable property that equals or exceeds the relinquished property (Vineyard B), no [section]1245 depreciation recapture is triggered.
One exchange tactic that hasn't been discussed much in recent years is the practice of refinancing the relinquished property just before it's exchanged, or the up-leg property shortly after it has been exchanged.
The basic rules for obtaining tax deferral are that the taxpayer must acquire replacement property (the new property) having equal or greater debt and equity as the relinquished property (the old property), all of the proceeds from the sale of the old property, must be reinvested into the new property acquisition and the taxpayer must receive nothing in the exchange except like-kind property.
The basis of the acquired property will equal the basis of the relinquished property when no cash is involved.
Reverse exchanges--Like-kind exchanges involving the purchase of replacement property prior to the sale of the relinquished property.
In addition, the investor must identify a replacement property within 45 days of the closing of the relinquished property and complete the exchange within 180 days.
Under section 1031(h)(2)(B), this determination is made, with respect to the relinquished property, by looking at its predominant use in the two-year period ending on the date of the relinquishment and, in the case of the replacement property, by reference to the two-year period beginning on the date of its acquisition.
The date on which the taxpayer transfers the relinquished property is the date on which the benefits and burdens of ownership of the property are transferred.
Section 1031 of the Internal Revenue Code allows property to qualify for tax deferral if a "like-kind" replacement property is found within 45 days of the sale of the relinquished property and the closing on the replacement property takes place within 180 days after the replacement property is identified, Bromma writes in his book.
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