TEE-Shots Newsletter

On February 17, 2006, the IRS issued additional relief to taxpayers affected by Hurricane Katrina. Taxpayers in the most severely impacted parishes and counties now have until August 28, 2006 to perform "time-sensitive actions." Such "time-sensitive actions" include extensions of your 45-day and 180-day deadlines for 1031 exchanges.

What difference would the earned interest make at today's rates? My QI is the cheapest around.

Of course, I'm talking about the interest that accrues on a client's money that is being held by the QI before the exchange is completed. And, I've heard this comment a number of times. But there are few free lunches in life. Sure, corners can be cut by using preprinted forms and so on, but there's got to be a profit in there somewhere. And, usually it's in the interest that the QI keeps. Here's an example:

A QI told me his commingling of his client's accounts isn't a problem because they're bonded. Is that correct?

During the past couple of years, we've had quite a wave of hurricanes and other natural disasters. In many cases, these disasters make it difficult for people to meet their 1031 exchange deadlines. Happily, the IRS recently issued a ruling called Revenue Procedure 2005-27 to offer guidance on this issue.

In basic terms, if you have begun your 1031 exchanges (either, you've sold your Old Property, or you've bought your New Property in a reverse exchange), you can get extensions of your 45- and 180-Day Deadlines, as long as:

Starting on August 30, 2005, the IRS began to announce Special Relief for taxpayers in the Presidentially-Declared Disaster Areas affected by Hurricane Katrina. Taxpayers residing in the following counties will have their tax deadlines extended, including the 45-day or 180-day time deadlines for their 1031 exchanges. Originally the extensions went to October 31, 2005. The NEW extensions go to January 3, 2006, which apply to what the IRS calls, "time sensitive acts."

§1031 says I have to take title to the New Property the same as the Old. But if my name is on the old title, how do I protect my personal assets from liability that comes from a new rental property?

Individual Ownership into a Single Member LLC

What if I just don't do an exchange?

A common question we get from prospective clients is how they determine what their tax consequenses would be if they didn't do an exchange. Here is a simple way to calculate it.

Depreciation Tax - First, you will be taxed at a maximum rate of 25% for all of the depreciation you've taken (or could have taken) on the property up to the amount of gains realized.

Can I use proceeds from the sale of my Old Property for the earnest money deposit on my New Property?

Yes, but there's a trick to it. Here’s how it's done:

First, make sure that the purchase contract for the replacement property has already been assigned to the intermediary. Next, make sure the escrow instructions state that should the contract be terminated, the earnest money will be returned to the intermediary and not to you. At your direction, the intermediary will forward the necessary funds to the seller’s agent or title company.

Am I allowed to take an earnest money check when selling my Old Property?

The rule of thumb is that you can't touch the money from the sale of your Old Property; however, you have until the closing of your Old Property to decide whether or not you want to go ahead with an exchange.

Can I exchange my real estate contract in a 1031 exchange?