Beutler Exchange Group

Our Newsletter

Keep Up To Date with Our Firm

Frequently Asked Questions of 2018 - Part I

The following questions are coming up daily in

conversations with clients and their advisers. Here

are a few quick answers. Feel free to contact the

Beutler Team for an in-depth discussion.

Do any of the Tax Code changes impact my exchange?

For most clients the answer is "no." There are just a couple of changes that

might affect certain exchanges.

The most significant change is that we can no longer exchange

personal property. Few of our transactions involve significant personal

property. Those that do...large apartment complexes, hotels, gas

stations, senior care facilities, ranches, etc. For all other clients this is

mostly a non-issue.

100% expensing is now permitted for certain kinds of improvements on

commercial properties - roof, HVAC, fire protection, alarm and security.

Clients who have utilized an "improvement" exchange for this work

may opt to do the work after they close on the new property and fully

write it off.

What is meant by "like kind?"

Would you believe that a rental house is like kind with a strip mall? And bare

land is like kind with a commercial building?

The generous definition of "like kind" makes this the best rule of 1031. All

property is like kind as long as what is being sold and bought are properties

held for "investment" or for "productive use in a trade or business." With this

definition clients are able to dramatically change their real estate portfolio

and defer the payment of capital gain taxes. Out of commercial into

residential. Out of residential into a mini-storage property or ag land or a

Starbucks or... What do they want? Almost anything will qualify as long as

the relinquished and replacement properties fall within one or more of these

the relinquished and replacement properties fall within one or more of these

categories.

What doesn't qualify?

Property held for personal use (second homes) and held for sale (flips, new

construction and some developer properties).

When do I need to set up the exchange?

Sooner rather than later.

Clients are on the fence. They don't know if they want an exchange. They

aren't finding a replacement property. The 45 days is so short. They don't

want to trouble anyone.

Please trouble us!

What is sometimes overlooked is that fact that the exchange company must

get their paperwork to the closing table. Clients get so focused on the 45-

day deadline they forget this critical requirement of an exchange. It takes

time for the exchange company and escrow to coordinate efforts.

Ideally, we would set up the exchange shortly after the relinquished property

inspections have been fully negotiated between the parties. That gives the

exchange company and escrow ample time to be ready for the closing.

I want to use the sale proceeds to build on some land I already own.

Not good. We cannot build on something our client already owns. The IRS

has been firm on this point.

I'll transfer it to my buddy and buy it from him.

Still not good. There are many issues with this idea including the fact that

the client is prohibited from buying a replacement property they owned

within the last 180 days.

Kelci Paiva