Exchanging Properties – New handbook clarifies many nuances involving tax-deferred exchanges.




“When you repeat a mistake it is not a mistake anymore: it is a decision.” – Paulo Coelho


By Sara S. Patterson | Nov.Dec.16

Real estate tax expert Mark Lee Levine, CCIM, JD, LLM (Tax), has published the Handbook on Exchanging Real Estate, a one volume work on tax-deferred exchanges in real estate. Most CCIMs are familiar with the value of using tax-deferred exchanges. On a personal basis or for clients, such tools for tax deferrals have enabled many commercial real estate brokers to work with clients to sell property that would not otherwise have been transferred, if the taxes were not avoided on the exchange. Thus, more commissions have been generated for CCIM designees because the deferral of taxes was possible when the Exchange technique was employed.

The focus in the Handbook is on the key issues that arise with exchanges. While Levine has various lengthier books that address the details on exchange issues, the Handbook is intended to give quick, practical answers that accurately address investors’ concerns about following the Exchange rules for Internal Revenue Code Section 1031.

This new Handbook contains areas of coverage on issues such as: Why does the exchange tool (IRC 1031) exist? Of course, given the history of this rule, starting back in 1921 when the U.S. Congress passed the first iteration of the law, commercial real estate professionals have seen how the ability to postpone the payment of taxes on gains from the disposition of qualified real estate has been a wonderful, legal approach to allowing investors to move from one investment to another property, without diluting the investment dollars by currently paying taxes.

The book also addresses the practical issue of when to use IRC 1031 exchanges – and when to avoid them. According to Levine, “There are many situations where the exchange tool should not be employed.”

Classification of property is critical for exchanges as some property, such as dealer property, will not qualify for tax deferral under IRC 1031. To come within this exchange rule, Levine notes that the property involved in the exchange must be “qualified property” and “like kind property.”

The Handbook examines several cases where these definitional requirements were and were not met. The prudent CCIM needs to know these requirements to support the needs for their clients, as well as to assist CCIMs who are undertaking an exchange for their own accounts.

Additional issues addressed in the Handbook include these five crucial discussions for CCIMs to assist their clients.

  1. What are the requirements to meet the “tax deferred, deferred exchange” rules?
  2. Can entities holding real estate also undertake exchanges  within 1031?
  3. What are the rules as to basis, holding periods, and other technical 1031 Rules when undertaking an exchange?
  4. Can you combine IRC 1031 with other tax rules, such as  installment sales?
  5. Can you have an exchange within IRC Section 1031, followed by another transfer and still come within IRC Section 1031? Or will the subsequent transfer, which occurred shortly after the exchange, destroy the IRC Section 1031 position?”

At about 400 pages, the reader may quickly reference the sources and tables for listing revenue rulings, revenue procedures, cases, and other related exchange materials. Most importantly, this Handbook allows commercial real estate professionals and investors to be more successful – and more profitable – when disposing of property by employing the exchange tool under IRC 1031.

This Handbook is available in hard copy and electronic form on Amazon.com.





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