A Successful Tax-Deferred 1031 Exchange for Real Estate

 

 

A Successful Tax-Deferred 1031 Exchange for Real Estate

Success! A manufacturer was closing down and selling an obsolete facility for $2 Million, and planned to purchase a new facility for $3.5 Million. The tax basis of the relinquished property was $1.3 Million resulting in a potential taxable gain of $700,000…. How did this go? A Successful Tax-Deferred 1031 Exchange case study.

As a company grows and prospers, it may decide to sell real property that no longer serves its needs, and replace it with more suitable real property. If a disposition and subsequent replacement of real property is structured properly, taxpayers can utilize IRC Section 1031 to defer the capital gain or depreciation recapture due from the sale of relinquished property.

Our expertise is 1031 Exchanges. Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties.

To successfully structure and complete an exchange of real estate under IRC Section 1031, there are many critical details that need to be considered:

  • Replacement Property – Do you know what you are going to purchase in order to replace your relinquished property?
  • Timing — Do you have exchange timing issues? Are you buying before selling?
  • Other taxes — How do transfer taxes affect the cost of your exchange?
  • Value — Are you selling for more than you are buying? Will you make improvements to the replacement property? What are your options to maximize your tax deferral?
  • Deposits — How are they held? Are you in constructive receipt of sales proceeds?

Give us a call to help guide you through this process to make your exchange the most successful transaction possible on aircraft, property and real estate.

Contact Us: +1 978.610.1234.

A Successful Tax-Deferred 1031 Exchange case study.

Do you need a Tax-Deferred 1031 Exchange?

TVPX Success Story regarding a tax-deferred 1031 Exchange

A Fortune 500 Company was selling its old aircraft for $16.0 Million. The old aircraft had a zero tax basis resulting in a potential taxable gain of $16.0 Million. Their intent was to replace the old aircraft with a newer aircraft valued at $30.0 Million. Ideally, they would have sold the old aircraft initiating a simple forward exchange identified replacement aircraft within 45 days, and subsequently closed on the purchase of the replacement aircraft within the 180 days allowed under the 1031 Exchange “safe harbor” Regulations.

Problem: The Company needed to purchase the replacement aircraft prior to selling the old aircraft because they hadn’t yet located a buyer for the old aircraft and the replacement aircraft was immediately available.

Solution: TVPX set up an Exchange Accommodation Titleholder entity in accordance with Revenue Procedure 2000-37 to purchase the replacement aircraft on the Company’s behalf and leased it to the Company with an option to purchase. The Company was able to use the aircraft, but was not the actual titleholder. Once a buyer was found for the old aircraft, it was sold beginning a 1031 tax-deferred exchange.

The Company subsequently purchased the replacement aircraft from the Exchange Accommodation Titleholder to complete the 1031 Exchange. Sales tax planning was also critical to ensure sales tax was not paid on both transfers of the replacement aircraft, which could partially negate the benefits of the 1031 Exchange.

TVPX 1031 Exchange Co (TVPX) is a nationally recognized Qualified Intermediary firm that can help you understand the 1031 exchange process from start to finish.

Our expertise is 1031 Exchanges.

TVPX can help you make educated decisions about the need to do  a 1031 exchange, and then help you structure your 1031 Exchange transaction, based on those needs. TVPX has expertise structuring exchanges on business and commercial aircraft, real estate,  and other assets held for productive use in your trade or business.

TVPX specializes in:

  • Qualified intermediary services under Internal Revenue Code (IRC) Section 1031
  • Reverse Exchange services under Revenue Procedure 2000-37

TVPX has the expertise to make it the most successful transaction possible.

Contact Us: +1 978.610.1234 or email to 1031-INFORMATION@TVPX.com.

Website: www.tvpx.com