|Seven 1031 Exchange Mistakes to Avoid|
|Seven 1031 Exchange Mistakes to Avoid|
|Changing Landscape of Internal Revenue Code §1031|
Federal Capital Gains Tax Rate to Rise
If you are considering selling an investment property, you may want to consider the impact of cashing out in 2010. Next year, the capital gains tax rate is expected to be higher than its current, historically low rate of 15%.
With the recent health care reform, the Medicare payroll tax has placed an additional 3.8% tax increase on capital gains and other investments, for single filers with income over $200,000 and joint filers with income over $250,000 starting in 2013. The capital gains tax is scheduled to rise to 20% at the end of the 2010 tax year, when the Bush tax cuts expire.
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Like-Kind Exchange (LKE) Program
Atlas 1031's LKE program solution is designed for Fortune 500 leasing, rental, distribution, oil and gas, transportation and companies with 100 or more assets or equipment that are routinely replaced. The solution seamlessly interfaces with your company's Fixed Asset application to:
The outcome is a cost savings that provides additional cash flow for current and new business operations. Let us use a sampling of your Fixed Asset data to present a simulation of the application.
Considering a self-directed IRA? Are you aware that your Roth or traditional IRA, SIMPLE, SEP, Health Savings Account and individual 401k can purchase and hold:
Self directed retirement accounts are not for everyone, but they can be a worthwhile wealth building tool. The Entrust Group is a third party custodian for nearly $3 billion in managed assets. Let me know if you are interested in learning more about a self directed IRA.
45-Day and 180-Day Extensions for Disaster Areas
The IRS has issued extension Notices for the following disaster areas (the Covered Disaster Areas) for storms beginning on March 12th (disaster date):
Service provides relief for those affected by early-April severe weather in North Dakota.
[Note that the IRS may add additional areas later as FEMA adds them. If you are near the Covered Disaster Area, check the disaster announcement website for updates. The FEA will not issue announcements if more areas are added.]
Both of the following criteria must be met to get the extension under Revenue Procedure 2007-56, section 17:
(1) The taxpayer is located in the Covered Disaster Area or is otherwise an affected taxpayer as defined in the Notice, regardless of where the relinquished property or replacement property is located, or otherwise has difficulty meeting the exchange deadlines under the conditions in Revenue Procedure 2007-56, section 17; AND
(2) The relinquished property was transferred (or the parked property was acquired by the EAT in a reverse exchange under Revenue Procedure 2000-37) on or before the disaster date listed above.
If the taxpayer meets these criteria, THEN any 45-day or 180-day deadline that falls on or after the disaster date is extended to 120 days from such deadline. Note the date may not be extended beyond one year of the due date (including extensions) of the tax return for the year of the disposition of the relinquished property (typically, if an extension was filed, 9/15 for corporations and 10/15 for other taxpayers).
Please see Revenue Procedure 2007-56, Section 17, and the notice below for further details.
This year has experienced a number of changes to the Internal Revenue Code impacting Section 1031 exchanges. Recent changes include:
The Housing Assistance Tax Act of 2008, signed by President Bush on July 30, 2008, includes a modification to the Section 121 exclusion of gain on the sale of a primary residence. This modification may affect taxpayers who exchange into a residential property, and then later convert the property to a personal residence, as explained below.
Under Code Section 121, a taxpayer can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain realized on the sale of a principal (primary) residence if they have owned and occupied the residence for two years during the five year period preceding the date of sale. Gain related to depreciation deductions taken on the property since May 6, 1997 is not eligible for exclusion.
Effective January 1, 2009, the exclusion will not apply to gain from the sale of the residence that is allocable to periods of "nonqualified use." Nonqualified use refers to periods that the property is not used as the taxpayer's principal residence. This change applies to use as a second home as well as a rental.
How does this affect 1031 planning? Suppose the taxpayer exchanged into the residence and rented it for four years, and then moved into it and lived in it for two years. The taxpayer then sold the residence and realized $300,000 of gain. Under prior law, the taxpayer would be eligible for the full $250,000 exclusion and would pay tax on $50,000. Under the new law, the exclusion would have to be prorated as follows (the example does not take into account deprecation taken after May, 1997, which is taxable anyway).
On August 1, Alabama joined the list of states that impose a withholding requirement on the sale or transfer of real property and associated tangible personal property by non-residents of the state. The requirement is codified at Ala. Code s. 40-18-86 (the "Statute"). The Statute provides that withholding tax is required on a sale of Alabama real property unless a seller can meet specified conditions to qualify as a resident of the state and provide the buyer an affidavit swearing to same. Unless the seller qualifies as a resident under the Statute, the buyer must withhold and remit tax in the amount of 3 or 4 percent of either the purchase price or the seller's gain (provided seller completes an Affidavit of Seller's Gain - Form NR-AF2). While the Statute did not specifically address how the withholding requirement applies to a transaction that is part of a 1031 exchange, the Alabama Department of Revenue ("ADOR") issued forms and instructions in implementing the Statute that provide guidance on the issue. Specifically, a 1031 exchange where there is a complete non-recognition of gain is exempt from the withholding requirement. A 1031 exchange where gain is partially not recognized is subject to the withholding requirement only to the extent of the recognized gain. If the exemption applies, the seller should execute and provide buyer a Seller's Certificate of Exemption (Form NR-AF3) but this document is not filed with ADOR. ADOR instructions and forms can be accessed at: http://www.revenue.alabama.gov/incometax/nonresidentwh.htm.
Provided by the Federation of Exchange Accommodators.
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