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Considering a 1031 tic exchange

By LORETTA CARPENTER, for ticinformation.net 8/25/2007

This tax incentive, known as the "Percentage Depletion Allowance", is specifically intended to encourage participation in oil and gas drilling. Although single tenants are often marked "investment grade" as listed by recognized credit rating agencies (and therefore in theory less risky), this offers little diversification if a tenant vacates or is unable to make lease payments. Because the taxpayer, not the EAT, will generally hold the benefits and burdens of the ownership of the property, GAAP may require the taxpayer to treat the property as its asset. Finally, the value anomaly is not evident in the pricing of REITs in the 1980s. Almost all these deductions come from money that you spend on the property, such as money for insurance, maintenance, repairs, and food for the Doberman you keep around to intimidate those tenants whose rent checks always are "in the mail". The section of the tax code that allows rollovers is a 1031 exchange.

The straight dope

If you are seriously considering purchasing a TIC we suggest that you pre-register with us so we can notify you as new TICs become available. Rather, it constitutes ownership of a portion of generated revenues from oil and gas production in which the ownership expires when the lease has been neglected due to termination of production.Real estate or immovable property is a legal term in some jurisdictions that encompasses land along with anything permanently affixed to the land, such as buildings.There are several 1031 Exchange Tax rules that deal with a concept known as "boot". Taxpayers usually take the position that loan acquisition costs are being paid out of the proceeds of the loan. In an exchange, all proceeds from the sale of property are available to purchase other property.x For example, vacant land can be exchanged for rental property. They have simply not existed for modest-sized investments, until now.Generally speaking, real estate can be exchanged for working interests in oil and gas well and, in some cases, royalty interests in oil and gas properties.

Comparing tenant in commons

Under Section 1031, Investors ability to designate like-kind replacement properties is limited by the extremely short time constrictions and the rules of identification: Investors typically may designate no more than three 3 Replacement Properties, and because of the limited time available to locate and identify these properties, typically only evaluate local or regional properties. In today's market, finding real estate values can be a challenge and individual investors have been somewhat limited to residential properties and small commercial structures. These exchanges allow real estate investors to defer the capital gains tax on the sale of appreciated property if they reinvest the proceeds in a new property. A 1031 exchange makes it possible for investors to sell and buy property of like kind while deferring tax consequences. These leases are not terminable by the tenant, nor are rent abatements permissible. Set-up and administrative fees are often misleadingly low.

Advice for the 1031 tic exchange beginner

The IDENTIFICATION PERIOD is the first 45 days of the exchange period.A 1031 exchange allows for the deferment of Federal, and in most cases state, capital gain and depreciation recapture taxes in real estate dealings. Therefore, any attempt to structure a reverse exchange necessarily required a delicate balancing of the client's tax objectives and its business objectives: how much risk was the Taxpayer willing to transfer to a "friendly third party" (and how much risk was the "friendly third party" willing to undertake) in order to establish that the third party was not acting as the Taxpayer's agent, thereby disqualifying the exchange? This will usually be in the form of Net cash received, or the difference between cash received from the sale of the relinquished property and cash paid to acquire the replacement propertyies. An affiliate of the taxpayer can lease from the accommodation party and have full use and benefit of the new property, including the right to construct improvements.

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