Understanding Real Estate

Tax-Deferred Exchanges

A Layman's Guide to Section 1031 of the Internal Revenue Code

By ALBERT J. VELARDE, M.A., J.D.

Includes 1991 IRS Regulations © Copyright 1991, 1994, 1996 Albert J. Velarde


INTRODUCTION

TAXES



EXCHANGES



DISADVANTAGES

LEGAL & ETHICAL


WHAT PROPERTIES QUALIFY

WHAT PROPERTIES DON'T QUALIFY

YOU DON'T HAVE TO SWAP

DO DEALERS QUALIFY?

HOW TO HAVE A TOTALLY TAX FREE EXCHANGE

PARTIAL TAX FREE EXCHANGE

COMMON EXCHANGE SITUATIONS


As much as I would like to, it is difficult to anticipate all of the situations which may involve an exchange and discuss them at length. So, I will comment on some of the most common ones which may prove to be most helpful to you.

PROPERTIES UNDER CONSTRUCTION

PARTNERSHIPS

SELLER FINANCING

CONSTRUCTIVE RECEIPT

ESTABLISHING INTENT

TIMING REQUIREMENTS

SUMMARY OF SECTION 1031 REQUIREMENTS

IN CONCLUSION...


The best advise I can give you is to USE EXPERTS!! It is too easy to make a mistake and lose your tax deferral. Improperly documented exchanges, even if you state your intentions in writing, have led to numerous DISALLOWED EXCHANGES by the IRS. Missing the 45 day or 180 day rule deadlines will cause the entire exchange to be DISALLOWED!

The penalties are severe! The IRS can assess the back taxes owed with a 25% PENALTY, and all at 20% INTEREST. A $ 10,000 tax owed could add up to a total of $ 17,500 due in two years when you get audited.

The IRS strongly believes in substance over intention. In other words, you must prove your intentions of doing an exchange, in writing, each step of the way. The IRS requires that you use either a "Qualified Intermediary" or "Qualified Escrow Accounts" (where the buyer of your property will buy the replacement property for you), or a "Qualified Trust" (where you hire a Trustee to hold the buyers money and acquire the replacement property for you).

Albert J. Velarde has been an attorney since 1978 and graduated from the University of Washington's School of Law. He is also a licensed Real Estate Broker. Mr. Velarde has extensive knowledge and experience with real estate tax-deferred exchanging and has taught this subject as a college professor and in state-approved courses taken by thousands of real estate brokers, agents and attorneys. He is also licensed to practice law in the District of Columbia, New York State, Washington State and the U.S. Tax Court.

I can facilitate your exchange in every state

FEES: $850 For the sale of one property and the purchase of another. $250 for each additional property purchased. The fee is negotiable for exchanges involving more than one property sold. This includes free income tax advice, which cheaper, non-lawyer competitors can't provide. There are no other fees or charges and includes properties located anywhere in the USA.



Return to Main Page


Copyright © 1996, Albert J. Velarde (All Rights Reserved).
Revised 9/10/96





- - - - - - - END OF PAGE - - - - - - - - - - -
























Internet Lawyer; Real Estate Law; Albert Velarde USA United States