Tax Free Exchange of Real Estate Under I.R.C. Section 1031
Real estate ownership equity owners (and not the holder of a mortgage
receivable or of a leasehold interest) can exchange their real estate equity
in one property tax-free for the real estate equity in another real estate
property provided that both the traded properties are held for business or
investment purposes (and not for personal residential use) by the exchange
partners. This tax-free exchange of investment or business real estate is
tax-free under Internal Revenue Code Section 1031 up to the extent of the
amount of real estate equity value actually exchanged. If either party to
the transaction receives cash money in addition to the incoming traded
property, that cash is called "boot", and it is subject to the imposition of
income taxes (capital gains taxes on capital gains and ordinary tax on the
recapture of depreciation expenses taken previously by the party receiving
the boot).
Multiple properties can be traded tax-free between the trading partners who
can be two or more in number. A trade directly between two different
exchange partners is called a "two-way exchange." A trade exchange
involving three partners is called a "three-way exchange." Three way
trades are a very real and practical way to make tax-free exchanges work to
everyone's benefit.
There are a number of tax requirements for the tax success of a Section 1031
tax free exchange including, but not limited to: (1) the original agreement
between the parties must be a properly-drafted exchange agreement, and not a
cash sale that was subsequently re-written in hindsight to be transformed
into an exchange agreement; and (2) the property transfer deeds and any cash
payments must be administered and controlled by an independent third party
such as a title insurance company, unrelated attorney, or bank trust
department.
For help in structuring a successful tax-free exchange of business or
investment real estate, you can hire the services of Certified Tax
Consultant Phillip Fry. An initial consultation
(including initial tax planning assistance to you) with Mr. Fry is US$500,
payable in advance by FREE international bank wire (you subtract your bank's
wire fee from your payment).
To arrange your consultation, please
email Phil, or phone him 63-906-510-4000
or 63-919-375-0302
(Philippines) 7 p.m. to 7 a.m. Eastern Time (Canada/USA time).
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