Posted on December 01, 2020
The election of Joe Biden to serve as the U.S.’s 46th president portends future tax increases for high-net-worth investors and estates as well as a potential loss of the preferential tax treatment of 1031 exchanges of like-kind real property. However, the likelihood that any changes to existing tax laws will occur in the next two years depends largely on the results of the Jan. 5 runoff elections in Georgia.
If Georgia voters keep even one of its two senators up for reelection, Republicans will maintain control of the Senate, preserving a divided Congress and reducing the probability that any meaningful tax legislature will be enacted until 2023 at the earliest. With this in mind, it is critical that real estate investors considering a sale of real property do so before the end of 2020 to take advantage of existing law and defer capital gains taxes if they put the money from the sale into another property. Similarly, investors in the midst of a 1031 exchange should work closely with their real estate advisors to determine all of the options available to them.
With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.
Posted on October 24, 2019
The government’s introduction of Opportunity Zones as a potentially lucrative (albeit complex) tax-deferral strategies has had little to no impact on the use of 1031 exchanges. These tried and true tools for tax-savings, which allow investors to defer capital gains tax on the sale of real property when they reinvest sales proceeds into a similar, like-kind assets, continues to enjoy widespread popularity thanks to favorable market conditions and substantial property appreciation. There are especially well-suited for investors in net lease properties with credit worthy tenants that generate steady income without requiring professional, hand-on property management.
With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.
Posted on January 17, 2018
The Tax Cuts and Jobs Act that President Trump signed into law effective Jan. 1, 2018, secured the rights of real estate owners and investors to conduct tax-deferred exchanges of properly structured “like-kind” real property. The law however, did eliminate the availability of tax-deferred exchanges of personal property, such as art work, coins and other collectibles.
Real estate 1031 exchanges are an important part of the U.S. economy, especially for small-to- medium-sized businesses and real estate investors. In some U.S. markets, 1031 exchanges touch at least 45 percent of real estate investment transactions.
Real estate industry trade groups, including the National Association of Realtors and National Association of Real Estate Investment Trusts, lobbied Congressional Republicans to retain Section 1031 in its tax reform plan, because it had been rumored to be under fire.
Other changes to the tax plan will impact homeowners but not commercial real estate owners.
The team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.
Posted on September 18, 2017
In addition to extending the deadlines of certain 2016 tax returns and payments for victims of Hurricanes Harvey and Irma, the IRS is giving affected taxpayers in the middle of a Section 1031 tax-deferred exchange extra time to identify and/or close on replacement property. This extension of time applies to taxpayers who live or own businesses in areas considered presidentially declared disaster areas and who were engaged in a Section 1031 exchange and sold property on or before September 10, 2017, for those impacted by Hurricane Irma, or August 23, 2017, for victims of Hurricane Harvey.
Affected taxpayers in Texas, Florida, Puerto Rico and the U.S. Virgin Islands who did not yet pass the normal 45-day period to identify Section 1031 replacement property will have until the later of January 31, 2018, or 165 days from the date they sold their relinquished property to identify possible replacement properties.
Likewise, instead of the allowable 180-day period to close on identified replacement property, affected taxpayers will have until the later of January 31, 2018, or 300 days from the date they sold their relinquished property to close on the purchase of replacement property. Under no circumstances can the postponement extend beyond the due date of taxpayers’ 2017 tax returns, including regular extensions.
These IRS extensions also apply to taxpayers who engaged in 1031 exchanges on or before the applicable dates (Sept. 10 for victims of Hurricane Irma or Aug. 23 for Hurricane Harvey) and who have difficulty meeting the statutory exchange deadlines due to one of the following disaster-related reasons:
- Either the replacement property or the relinquished property (in the case of a reverse tax-deferred exchange) is located in the covered disaster area;
- The principal place of business of any party to the transaction (e.g. qualified intermediary, exchange accommodation titleholder, settlement agent, lender, title insurer) is located in the covered disaster area;
- Any party to the transaction is killed, injured or missing as a result of the disaster;
- A document relating to the exchange or a relevant closing document is destroyed, damaged or lost due to the covered disaster;
- A lender decides to not fund because of the disaster or because of flood, disaster or other hazard insurance not being available due to the disaster; or
- A title insurance company is unable to provide the required title insurance policy necessary to close due to the disaster.
In the event that a replacement property identified before the disaster sustains substantial damages, alternative replacement property may be identified by the later of January 31, 2018, or 165 days from the date the relinquished property was sold. Similar relief to the above is also available for reverse tax-deferred exchanges.
Storm victims should contact their qualified intermediaries to inform them of their eligibility and decision to take advantage of disaster-related tax deadline extensions.
Posted on August 02, 2017
Earlier this year, market research firm IBISWorld reported that the U.S. chain-restaurant market, which has been growing at a steady rate since 2012, is today an approximate $112.3 billion industry. Additionally, a report from business consultancy McKinsey and Company foresees restaurants driving the future of shopping malls, where leasable space devoted to food and beverage services is expected to increase from 10 percent to 25 percent by 2020 in response to consumers’ demands for improved shopping experiences.
This market shift presents investors with unique opportunities to diversify their real estate portfolios and capitalize on the growing market of net-leased restaurant properties, especially when considering a tax-deferred 1031 like-kind exchange. The price point and equity requirements of a quick-serve restaurant (QSR) with a long-term lease in place is typically right on target for the average individual investor, as are these properties’ cap rates.
Engaging in a tax-friendly 1031 exchange however does not come without challenges. In addition to navigating a complex technical landscape for effecting a 1031 exchange, property sellers and buyers must have an understanding of the commercial real estate market, both on the national and local levels, as well as the potential risks and rewards of different types of restaurants, including QSRs and sit-down establishments. Experienced real-estate professionals are an ideal source for gathering this detailed data and helping to guide investors through the process for maximizing the value for the investments over the long term.
The professionals with Orion Real Estate Group work with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.
Posted on May 31, 2017
In the complex navigation of 1031 exchanges of commercial real estate, the timing of ownership and execution of like-kind exchanges are among the top considerations. While 1031 exchanges themselves provide property owners with the flexibility to update their investment mix, the IRS allows very little leeway in terms of timing.
First, property owners must consider the amount of time they owned a property before selling it as a part of a 1031 exchange. While there is no specific law dictating a minimum or maximum time of ownership, best practices supported by several U.S. Tax Court decisions dictate that owners should hold a property for at least two years before selling it. This means that “flippers” may not qualify.
The next timing issue concerns the completion of the exchange. The requisite time to identify and close on replacement property is crucial. In many circumstances, a property owner will complete the sale and subsequent purchase of like-kind commercial real estate simultaneously. While this may be an ideal scenario, it is not always the most practical. For example, there are times when a seller will have a hard time finding a suitable replacement property or portfolio of properties in which to reinvest his or her sales proceeds. In these scenarios, sellers must know that they have 45 days after transferring a deed to a buyer to identify up to three possible replacement properties. Within 180 days of the deed transfer, or the due date of the seller’s tax return including any extensions, the seller must complete the purchase and take possession of the replacement property.
There are exceptions to these rules, including reverse exchanges which allow sellers more time provided they meet other criteria.
As tax laws continue to evolve, it is important to have the support of a team of experienced professionals who understand these complex processes and procedures and can help identify replacement property or properties in the allowable time frames.
The professionals with Orion Real Estate Group work with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation property management and disposition. For more information, call (305) 278-8400
or email info@orionmiami.com.
