1031 Exchanges

Internal Revenue Code Section 1031 is a provision that allows for the gain from the sale or exchange of real property held for productive use or investment to be deferred. The deferral is potentially indefinite, provided such property is exchanged for like-kind property that is also held for productive use or investment. Allowance of the deferral emanated from the simple situation of allowing two parties to swap their properties without incurring income tax. This has since morphed into a complicated set of rules, regulations, procedures and court cases which allow for situations where if a taxpayer cannot find a party to swap property, the taxpayer may sell their property and later reinvest the proceeds in another property whether in existence, or possibly to be constructed. The IRS allows a taxpayer who exchanges such real property to complete an exchange without requiring it to take place simultaneously with the acquisition of the replacement property.

Messerli Kramer’s real estate attorneys have significant experience in handling such tax-deferred exchanges, including the use of structures such as Tenancy in Common and Delaware Statutory Trusts, in order to aid in these exchanges. There are situations where many taxpayers and their advisors are unaware of the conventions that may be used in order to properly structure an entity or ownership of the property to defer taxes. Such taxes may be deferred indefinitely by taxpayers or their family who may hold property until a step-up in tax basis is achieved at the property owner’s death. Exchanges may be used for significant estate planning, wealth transfer, diversity of real estate investments and greater appreciation through leverage and tax deferral to obtain significantly greater cash flow.

Representative Experience

• Represented numerous clients and their member entities in the structural reorganization of limited liability companies in order to effectuate various IRC Section 1031 exchanges for the sale of over $90 million in real estate by using various techniques coordinated with section 1031 of the Internal Revenue Code, adding additional flexibility in the acquisition of various replacement properties.

• Represented numerous clients with IRC Section 1031 exchanges, transferring entities’ property to a related entity constructed a building, leasing and repurchasing them using proceeds from the sale of relinquished properties in a tax deferred exchange transactions.

• Represented numerous clients in IRC Section 1031 tax deferred exchange work, including reorganizing entities by distributing assets in Tenancy in Common structures in order to effectuate the exchanges.

• Represented several sponsors in syndicated IRC Section 1031 exchange structures by using Tenancy in Common and Delaware Statutory Trusts.

Professionals

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