Ten Thirty-One Exchange Corp.

There are myths. Here's the facts.

“In order to do an Exchange, I have to find someone to trade properties with.”

Not true. By using a Qualified Intermediary you can sell to anyone and buy any property that you want.

“Exchanges can only be of land for land, rental for rental, etc.”

Any given exchange must be of “like-kind” property. IRC Section 1031 defines “like-kind” as “property held for investment or productive use”. This includes vacant land, residential rental property, commercial property, condominiums, apartment buildings, or any real property that is not the taxpayer’s primary residence. Any combination of types is allowable.

“My closing is tomorrow. It’s too late to do an exchange.”

Until title has passed to the buyer and money has been received, it is not too late to set up an exchange.

“We can just have the title company keep the money until we find property to exchange into.”

A title company can hold the funds, but that, in itself, does not make them an Intermediary. There must be an exchange agreement in place between the taxpayer and the intermediary at the time of the sale and the funds cannot be in “control” of the taxpayer.

“Exchanges are complicated.”

If handled properly by a good Qualified Intermediary, the exchange will seem to be no different than a simple sale and a simple purchase.

“Exchanges will trigger tax audits.”

If handled properly by the Accountant and Qualified Intermediary, there should be no more chance of getting audited than in the case of a straight sale.

“Why should I do an Exchange? The taxes will have to be accounted for at some time.”

This is true, but changes in certain tax laws as well as recent reductions in the capital gains rate offer hope for more favorable situations in the future.

“If I do an exchange, my options will be limited.”

Under IRC Section 1031, the only limitations are that the properties must be “like-kind” and located within the United States. Multiple properties may be sold and more than one property may be purchased (within the applicable time deadlines).

“I am about to purchase a property as replacement but I don’t yet have my “Relinquished” property sold. Can I still exchange?”

There exists what is called a “reverse” exchange. In this process, the “Replacement” property is purchased by the Qualified Intermediary (with money loaned by taxpayer) and “parked” until the “Relinquished” property is sold.

Eva PradaLew GeerJamie LattimoreJohn Fox