Hotels and Motels Defer Gain with a 1031 Exchange
Posted by Andy Gustafson on Tue, Aug 24, 2010
When an individual or corporate hotel/motel owner considers selling, tax implications must also be a part of the process. If the owner intends to replace with another hotel/motel, a 1031 exchange is a viable strategy to defer the gain.
Tangible Personal Property
One of the first steps is to seek tax counsel. Specifically, does the real and tangible personal property trigger a gain when sold? If so, then the real property can be exchanged for real property while the personal property must be exchanged for personal property of like kind or character as defined in the one of the thirteen asset classes. Furniture is exchanged for new furniture, laundry equipment is exchanged for laundry equipment, computers for computers, etc.
Typically, legal counsel for the individual or corporate owner will review the 1031 documentation and request changes that are specific to their client. Other than those changes, the exchange documents are the same as they are for a fast food franchise nursing home. The 1031 documents comply with IRS regulations.
Whether the hotel/motel is large or small, the same diligence and attention to detail is provided to ensure the 1031 exchange is properly documented and exchange proceeds are held in a non commingled, qualified escrow account under the client's employer identification number. The qualified escrow account requires dual signatures, with the client's signature matching the notarized copy.
Alternatives
Improvement Exchange - If replacement plans include improving the new hotel/motel, an improvement exchange can be accommodated.
Leasehold Improvement Exchange - An alternative to a new hotel/motel could be making improvements to one that is already owned.
Operate Outside the US - Hotels/motels sold outside the US can be replaced with hotels/motels in another foreign country and gain deferred.
Atlas 1031 would be honored to work with your tax counsel and be the accommodator of choice for all your hotel/motel transactions.
