IRS Section 1031

Internal Revenue Code Section 1031 provides a means by which a property held for investment or use in a business can be sold (relinquished) and a replacement property acquired without paying any taxes. A Section 1031 exchange is also commonly referred to as “tax-deferred”, “tax-free”, “like-kind” or a “Starker” exchange. As a quick summary, under Section 1031, and subject to the “safe harbor” provisions contained therein, a taxpayer may exchange qualified commercial or investment property for other qualified commercial or investment property. Typically, in a non-simultaneous exchange, the taxpayer sells the property it no longer wants (the “relinquished property”) and purchases a “replacement property”. If the taxpayer then identifies up to three replacement properties within 45 days of the sale of the relinquished property, and settles on the replacement property within 180 days of the settlement on the relinquished property, the taxpayer can defer all capital gains tax. (Click on the tab Technical Aspects for a more detailed review of the Section 1031 requirements).

You owe it to yourself to consider using Elkins Lane for your Section 1031 exchange if any of the following apply to your commercial building:

  • You own highly appreciated and/or highly depreciated commercial or investment real property and you face a huge capital gains tax bill on a contemplated or pending sale.
  • You own a high management/high headache commercial or investment real property and would like to exchange it for low management/low headache commercial real property without paying any tax while doing so.
  • You own low or zero income commercial or investment real property (example raw land) and you would like to replace it with income producing property.
  • You are in a panic because you have already settled on your relinquished property and have 45 days or less to identify appealing replacement properties.
  • You have just closed on the sale of a property and have already entered into an Exchange Agreement with a Qualified Intermediary.
  • You have just entered into or are about to enter into a contract of sale for commercial or investment real property.
  • You would like to learn more about how you can defer paying capital gains tax indefinitely on the sale or exchange of commercial or investment real property.
  • You would like to meet a team of competent real estate professionals who can guide you through the tax deferred exchange process and help you to complete the successful sale/purchase and exchange of real properties.
  • You are a buyer-broker and could use some assistance with a client.
  • You are an owner-user and would like to consider a sale and leaseback in order to free up capital for your business (the most under- utilized tool for owner-users of real estate that we see today).
  • If you would like to discuss selling an existing property.

Managing the 1031 Exchange Process:

The exchange process must be carefully orchestrated and managed in order to ensure the success of a 1031 exchange. Elkins Lane Realty Advisors is involved with each important facet during this continuum. We interface with lawyers, accountants, and estate planners. We provide the expert oversight and guidance to avoid a “failed 1031” that results in a large check being written to pay the tax.

We are not lawyers, facilitators or qualified intermediaries, but rather managers for the entire process. We provide brokerage services to dispose of the relinquished property and/or supply replacement properties. We skillfully handle the myriad of details and follow-up necessary to cause the properties to be identified and settle within the strict time line constraints imposed by the IRS. We do not provide legal, tax, or accounting advice. For that, see your appropriate professional.

The number of failed 1031 exchanges is phenomenal due to the many moving parts and the rigorous time requirements (see Technical Aspects of 1031 Exchange). We review each element constantly in order to keep the transaction on the path to success. Our principals become involved in all the elements surrounding the process. We ensure that an exchange closes on time and that it meets our client’s goals. The precise orchestration and coordination between client, real estate broker, accountant, lawyer, lender (if any), estate planner (if any) and qualified intermediary, is essential for a successful exchange.

Providing Replacement Properties:

Together with our own packaged real estate products, we serve as a clearinghouse for an assortment of qualifying properties including a variety of property types, geographic locations, returns, and associated risks. Some properties may be net-leased properties carrying bond-rated credit tenants while other properties may include regional or local rated credit tenants. They may be office buildings, strip centers, warehouses, raw land, or apartment buildings.

A higher level of excellence in commercial real estate