When the relinquished property is transferred to the buyer, the taxpayer has often not yet chosen the new property he or she wants to acquire as a replacement. When that is the case, a deferred exchange is necessary. The taxpayer has 45 days to identify the replacement property. The transfer of the replacement property must close within 180 days of the transfer of the relinquished property.

If the Taxpayer has found his or her replacement property and must close on it prior to the time that the relinquished property is ready to close, then the transaction becomes a "reverse exchange." The IRS requires that a reverse exchange use one of the two parking procedures below:

Type A: Relinquished Property Parked
Taxpayer acquires replacement property and conveys the relinquished property to the Exchange Accommodation Titleholder ("EAT"), using an exchange intermediary.
Type B: Replacement Property Parked
The EAT acquires the replacement property. The EAT may construct improvements on the property if needed. When the taxpayer's relinquished property is ready to close, then the taxpayer will exchange the relinquished property for the replacement property through an exchange intermediary.

Additional rules and considerations for reverse exchanges are discussed on pages 13 -15 of our brochure 1031 Exchanges in a Nutshell. Request Brochure (link to contact form)

Also referred to as a construction or improvement like-kind exchange, these transactions allow the taxpayer to build, construct, or make capital improvements to a property before acquiring it as a replacement. Exchange proceeds from the relinquished property may be used to fund the construction or build-out within certain guidelines.

An Exchange Accommodation Titleholder (EAT) may hold the property during construction as part of a Parking Arrangement. The Qualified Intermediary (Accommodator) controls exchange funds for acquisition of replacement property and payment of construction costs. By the end of the 180-day holding period for the exchange, the improved replacement property is transferred to the taxpayer to complete the tax-deferred exchange.

Structuring a Build-To-Suit Exchange may allow the taxpayer to purchase a replacement property of lower value, and make capital improvements to increase the value to equal or greater than the relinquished property- thereby avoiding tax liability.

Tenant in Common is also known as fractional ownership. Under this co-ownership structure, you will own an undivided fractional interest in an entire property and share in your portion of the net income, tax shelters, and growth. Further, you will receive a separate deed and title insurance for your percentage interest in the property and have the same rights as a single owner.

Because Tenant in Common opportunities are often "packaged" with management and financing in place, they offer efficiency in the identification, acquisition, financing, closing, and operating stages of real estate ownership. Fractional ownership also provides you with the ability to diversify your 1031 tax free exchange into more than one property and to participate in potentially larger, institutional quality properties. Investors may participate in large industrial, commercial, and residential property investments all around the country.

Personal property held for investment or business use can be exchanged for like-kind property. This includes tangible property such as aircraft, fleet vehicles, fine art, heavy equipment and machinery; and intangible property such as liquor licenses, copyrights, franchise agreements and domain names. When sold without a 1031 exchange, these items may be subject to capital gains tax due to depreciation of assets in the company books. A 1031 can defer capital gains tax as well as depreciation recapture. Like-kind replacement property must be of the same General Asset Class or Product Class and must be held for investment or business use.

General Asset Classes

General Asset Classes are set forth in Treasury Regulation §1.1031(a)-2.

  1. Office furniture, fixtures, and equipment (asset class .11)
  2. Information systems (asset class .12)
  3. Data handling equipment, except computers (asset .13)
  4. Airplanes (airframes and engines) except those used in commercial or contract carrying of passengers or freight, and all helicopters (airframes and engines) (asset class .21)
  5. Automobiles, taxis (asset class.22)
  6. Buses (asset class.23)
  7. Light general-purpose trucks (asset class .241)
  8. Heavy general-purpose trucks (asset class .242)
  9. Railroad cars and locomotives, except those owned by railroad transportation companies (asset class .25)
  10. Tractor units for use over-the-road (asset class.26)
  11. Trailers and trailer-mounted containers (asset class .27)
  12. Vessels, barges, tugs, and similar water-transportation equipment (asset class .28)
  13. Industrial steam and electric generation and/or distribution systems (asset class.4)

Product Class

Product classes are defined by the North American Industry Classification System (NAICS). See the link below for the table of product classes. All applicable classes in the manufacturing sector are six-digit codes beginning with 31, 32 and 33.

http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2007

A Ten Thirty-One Exchange Corp. 2011 Botulph Road
Suite 200
Santa Fe, NM 87505
505-982-1031 phone
505-982-5211 fax
800-500-1031