Teresa Person CES®
tperson@1031exchangecorp.com
Course No. 01-00-095-26094
Provider No. 0001
The ABC’s of Exchanging
Course No. 01-00-095-26094
Provider No. 0001
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Historical Perspective
◦ Original Tax Law
◦ Starker Case Against the IRS
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Defers or Eliminates Tax on Capital Gains
◦ “Gain or loss is not recognized when property held
for use in trade or business or for investment, is
exchanged for like-kind property to be held for use
in trade or business or for investment.”
Course No. 01-00-095-26094
Provider No. 0001
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Must be Investment, Business or Income
Property
Must Exchange for Property of a “Like-Kind”
◦ Rules flexible with definition of “Like-Kind” when
Real Estate is exchanged
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Must Properly Document as an Exchange
Course No. 01-00-095-26094
Provider No. 0001
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Consolidate or Diversify Investments
◦ Reduce/Increase Number of Units
◦ Move to Various Types of Units
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Relocation of Investment
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Greater Cash Flow
◦ Raw Land vs. Income Property
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Can be an Important Part of Estate Planning
Course No. 01-00-095-26094
Provider No. 0001
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Deferred Exchange
◦ Sale then Purchase
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Reverse Exchange
◦ Purchase then Sale
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Construction/Build to Suit
Personal Property
Second/Vacation Homes
Course No. 01-00-095-26094
Provider No. 0001
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Reference Exchange in Contract or Attach
Addendum
Contact Intermediary
Close Sale – Proceeds to Intermediary
Identify Replacement Property
◦ 45 and 180 deadlines
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Contract for Replacement Property
Notify Intermediary
Close on Replacement Property
Course No. 01-00-095-26094
Provider No. 0001
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Timing
Related Parties
Equity versus Proceeds
Boot
Constructive Receipt
Same Taxpayer Rule
Partial Exchanges – Okay
Business Property
Seller Financing
Course No. 01-00-095-26094
Provider No. 0001
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§121 – Principal Residence Exemption
◦ No two year tolling period
◦ No IRS forms to complete
 $250,000 for Single Filers
 $500,000 for Married Filers
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§ 1033 – Condemnation/Involuntary Conversion
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Tolling period of 2 or 3 years
No Intermediary Required
No Constructive Receipt Issues
Some Like-Kind Restrictions
Filing with IRS is Required
Course No. 01-00-095-26094
Provider No. 0001
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Expiration of tax cuts caused a substantial increase in federal
income taxes for most taxpayers!
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Capital Gains Tax
from 15% - 20%
Surtax for Affordable Care Act
add
◦ Adjusted Gross Income greater than $450K/$400K
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◦ Applies to Net Investment Income
3.8%
 To the extent in excess of $250K/$200K
◦ Does not include gains from sale of properties used in the ordinary course
of business, unless the properties are a “Passive Activity”
◦ AGI $250,000/$125,000/$200,000
◦ Doesn’t apply to C Corporations
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Ordinary Income Tax
increased to 39.6%
◦ Does this apply to 1031 Exchanges? Yes, tax can be deferred
Course No. 01-00-095-26094
Provider No. 0001
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Higher Tax Rate
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Rollover
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Elimination
Course No. 01-00-095-26094
Provider No. 0001
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Sales Price
Less Costs of Sale
Adjusted Sales Price
$500,000
50,000
$450.000
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Adjusted Basis
$200,000
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Depreciation Taken
$ 45,000
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Taxable Gain ($450,000 - $200,000)
$250,000
Tax on Disposition
◦ ($250,000 X 20% plus $45,000 x 25%)
$ 61,250
Amount Remaining to Reinvest
$388,750
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Course No. 01-00-095-26094
Provider No. 0001
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Sales Price
Less costs of sale
$500,000
50,000
 Proceeds
$450,000
With an exchange, the tax is deferred
allowing the full amount of proceeds
to be reinvested. Assuming a 80%
LTV ratio, an additional $306,250.00
in property can be purchased
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Course No. 01-00-095-26094
Provider No. 0001
Sales Price
Less Basis
Recognized Gain
$ 400,000.00
150,000.00
$250,000.00
Left to Heirs:
Sales Price
Less Basis
Recognized Gain
$400,000.00
400,000.00
$
0.00
Heirs Hold Then Sale :
Sales Price
Less Basis
Recognized Gain
$500,000.00
400,000.00
$100,000.00
Course No. 01-00-095-26094
Provider No. 0001
QUESTIONS
Course No. 01-00-095-26094
Provider No. 0001
Please contact me anytime with
questions about Tax Deferred
Exchanges.
www.1031exchangecorp.com or
tperson@1031exchangecorp.com
Course No. 01-00-095-26094
Provider No. 0001