Exchanging Thoughts

Margo McDonnell

Recent Posts

Seller Financing in a 1031 Exchange

Posted by Margo McDonnell on Wed, May 27, 2020

Sellers are sometimes asked to provide financing to the buyer of their property as part of the sale negotiations. Usually structured with payments spread out over a number of years, sellers can report the transaction as an installment sale under Section 453 of the tax code. The installment sale method would allow the seller to defer the gain over the life of the note. Taxes are paid based on the payments received each year and part of each payment is the return of your basis, part is your capital gain which will be taxed according to capital gains tax rates and the interest paid is treated as ordinary income.

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Topics: section 1031, 1031 Exchange, Seller Financing, Section 453, Installment Sale

DSTs: An Alternative 1031 Replacement Property Option

Posted by Margo McDonnell on Tue, May 26, 2020

Owners of appreciated real estate face tough decisions: (1) hold onto a property that may not be working for them anymore so they don’t have to pay the high tax liabilities associated with selling; (2) sell and pay the capital gains, 25% depreciation recapture and possibly the 3.8% Net Investment Income Tax; or (3) complete a 1031 exchange, defer the gain and reinvest all proceeds into more desirable replacement property. For those investors exchanging, they can buy traditional fee interest in property or an investment vehicle known as a Delaware Statutory Trust (DST). Regardless, all of the 1031 exchange rules and timelines remain the sale. The DST is simply a different replacement property option.

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Topics: 1031 exchanges, 1031 Replacement property, Revenue Ruling 2004-86, Delaware Statutory Trust (DST), Real Estate Investing, Appreciated Property

Personal Property Repealed from Section 1031….But Not Yet!

Posted by Margo McDonnell on Tue, Dec 26, 2017

After talking about it since before the 2016 elections, Congress passed the Republican tax reform bill, HR.1, the "Tax Cuts and Jobs Act" on Wednesday, December 20, 2017 and President Donald Trump signed the bill into law on December 22, 2017. The legislation will take effect January 1, 2018.

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Topics: personal property 1031 exchanges, personal property exchange, 1031 Exchange, 1031 Tax Updates, Tax Reform

Tips for a Smooth 45-Day Identification Period

Posted by Margo McDonnell on Tue, Oct 25, 2016

The real estate market remains hot, which is very advantageous to sellers. To help avoid the stress sometimes associated with identifying replacement property within the 45-Day Identification Period, Exchangers are encouraged to look for replacement property once their relinquished property is under contract with a seller. No doubt, the 45 days go by quickly, but using the time between going under contract and the actual closing typically gives you 45-60 days before the timeclock starts clicking. This timeframe is before your 45-Day Identification Period ever starts, which gives you that extra time to navigate the identifications rules.

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Topics: earnest money deposits on 1031 replacement propert, 45-Day Identification Period, 1031 Replacement property

Maybe we will bring like-kind exchanges to PA

Posted by Margo McDonnell on Fri, Jul 08, 2016

This Free for all Friday addresses 1031 CORP.'s ongoing commitment to bring like-kind exchanges to Pennsylvania.

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Topics: benefits of 1031 exchange

Pennsylvania May Help Its Taxpayers Build Wealth

Posted by Margo McDonnell on Wed, Feb 06, 2013

On this Wealth Building Wednesday, we are talking about PA Gov. Tom Corbett and a proposed state budget that making those of us in the 1031 exchange industry giddy! Pennsylvania has long been one of the few states that does not recognize 1031 exchange or have a similar provision to allow the deferral of state income tax on the exchange of assets held for business use or investment. 

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Topics: PA Income Tax and 1031

Taxable Sale vs. 1031 Exchange: Impact of New and Higher Taxes

Posted by Margo McDonnell on Fri, Feb 01, 2013

Exchange Team

By none, we have all heard quite a bit about the American Taxpayer Act of 2012 and the new 3.8% Medicare Tax.  Now let’s take a look at an example and see how a 1031 tax-deferred exchange might benefit the seller:

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Topics: tax consequences of a 1031 exchange

Related Party Exchanges Require Caution

Posted by Margo McDonnell on Tue, Jan 29, 2013

This Tuesday’s Tip reminds everyone that 1031 tax-deferred exchanges between related parties should be carefully considered as these types of transactions have received considerable attention from the IRS recently.  

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Topics: related party 1031 exchanges

Putting a 1031 Replacement Property under Contract

Posted by Margo McDonnell on Tue, Jan 15, 2013

This Tuesday Tip looks at how the earnest money deposit for the replacement property in a 1031 tax-deferred exchange should be handled. If 1031 CORP. is holding the exchange funds, the deposit can be withdrawn from your exchange account provided the Agreement of Sale with the seller of the replacement property is assigned to 1031 CORP., as the Qualified Intermediary. The Assignment is often included when the Agreement of Sale is signed but if it is not, it can be signed by the Seller at any time in order to have the deposit paid from the exchange account. If for whatever reason, the Assignment cannot be signed by the Seller, 1031 CORP. can prepare a written notification of the assignment and have it delivered to the Seller. The notification will include a hold harmless clause assuring the Seller the 1031 exchange will not affect the Seller in any way or increase the Seller’s costs. 

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Topics: 1031 exchange assignment; 1031 exchange rules

Value of Consulting your Tax Advisor Especially Now

Posted by Margo McDonnell on Tue, Jan 08, 2013

Our Tuesday Tip is an important one – especially now. While 1031 CORP. has always suggested you discuss your situation with a tax advisor to determine the best you to proceed, that suggestion is more important than ever now that the tax rates have changed. Completing a 1031 tax-deferred exchange can defer the capital gains and 3.8% Medicare Tax as well as the depreciation recapture but now exchanges can help keep you out of the 20% capital gains and dividend tax brackets and the new 39.6% income tax bracket. Exchanges can also help avoid the personal exemption phase out and the Pease Tax. (Summary of new tax bill)

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Topics: benefits of 1031 exchange, 2013 Tax Bill