1031 转换

• 延迟付税 （30-40%的资本收益），今天的资金永远比未来的钱值钱。 
• 一系列的买卖，只需在最后一次出售的时候支付一次税收
• 留给孩子时，利用Step up basis 把不动产成本自动提高到市场价值，从而得以省掉所有的付税。 
• 随时根据自己收入情况，调整收入水平，从而拉低收入区间所对应的税率。
• 和个人房产相结合，同时利用商业和住房地产的税收优惠政策，最大限度降低税负

A 1031 Exchange Does a Lot More Than Defer Taxes

• Future Conversion to Personal Use Property: Whether you are planning for retirement or simply cannot afford to acquire a vacation home yet, a 1031 exchange may be able to help.  The eventual sale of the replacement property may qualify for the Section 121 Primary Residence Exclusion or a Vacation Home 1031 Exchange.
• The gain can be deferred indefinitely and when one passes away, his heirs inherit the property with a stepped up basis and the gain is forgiven.

税收以外的好处：

符合1031转换的物业：商用转商用

出租房产：IRS 没有明确规定出租的期限。 1031转换公司觉得，出租期限至少一年（最好多出1天）； 最好连续两年显示在的报税文件上。 （可以出租给自己的孩子-不是房主，但是必须有相当于市场租金的记录和报税。）

度假房产： 最近两年每年出租了至少14天，没有自住过；或者自住的天数小于10%的出租天数。 

自住房产中用于办公的部分：连续两年显示在的报税文件上

地域要求：全美范围内类似房屋转换均可

数目要求：一个房屋置换多个；或者，多个房屋置换一个

置换次数： 无数次

A。必须使用合格的1031转换公司. 必须尽早和转换公司签订转换协议，最晚要在出售第一个地产过户之前。regular: 即时通知开设；improvement/reverse 提前2-3周

B。同一个纳税人 （例外：个人和生前信托，即可撤销的信托，设立者；对IRS而言，这种信托的纳税人就是信托成立者本人。） 

C。时间表

一、丝毫不能错过；所有节假日都计算在内。

二、购买新资产的过户必须在180天或报税日期或其申请的延迟日期之前， 以早到的日期为准）：

D。45天内必须锁定并提交地址价格等信息给交换公司， 45之内可以更改物业， 45天后的更改将自动作废1031转换。 

• 3个物业 （价值没有规定）； 必须在这三个物业中购买一个。如果你没有买到任何一个，那么1031转换也自动作废。 
• 200% 规则： 多个总值不超过售出物业两倍的价格，注意如果你没有拿到其中一个物业，别的买家提高价格买到此物业，那么你剩下总的额度就会被减少。 
• 95% 规则： 不太明白。 

E。全额延迟税款的投资要求

• 新置物业的购买价格 >= 售出物业的价格
• 新置物业的净资产 >= 售出物业的净资产
• * 可以增加现金投资取代原来的贷款数额。* 可以利用装修新物业来提高新物业的价格。

无法全额延税的情况，即交换人在1031后仍有现金剩余； 这个叫Boot， 可能会有税赋责任，会计师有可能帮助你利用其它的税收优惠政策，计入各类装修，利息等等成本，等等，进一步降低你实际缴纳的税额。 

出售物业部分

1. 转换人和1031公司签署《转换服务协议》
2. 转换人（卖家）和买家签署《出售物业的买卖合同》， 并且在这个合同中指定1031转换公司代行转换人（卖家）的权力 Assignment Provision and Exchange Cooperation Clause in Sales Contract. 
3. 1031转换公司要求过户公司归还贷款、支付交易费用，然后将余款打入转换人在1031转换公司设置的账户； 同时要求过户公司直接安排将地契从卖家转到买家名下。

交换人在45天内锁定要购买的替代物业

购买替代物业部分

1. 转换人（买家）和卖家签署《替代物业的买卖合同》，在该合同中指定1031转换公司代行转换人（买家）的权力 Assignment Provision and Exchange Cooperation Clause in Purchase Contract. 
2. 在180天内或纳税日之前，替代物业过户。 过户时， 1031转换公司电汇资金到过户公司； 同时要求过户公司直接安排将地契从卖家转到转换人（买家）名下。
3.  1031转换完成。1031公司最后将余款电汇给转换人。 

1031 转换公司准备的文件：

额外步骤

• 选择转换公司： neutral and not advising for past 2 years. 
• 律师审阅所有文件

• 支付税
• 死亡
• 卖家提供贷款???
• 转换为投资，以后变为退休房屋 (Exchange into investment, later converted to Retirement home)???
• 资产规划
• 转换为低维护的资产
  • Tenancy in Common （TIC）
  • Delaware Statutory Trust (DST)
  • Triple Net (Net Lease) Commercial

• 改投资房为自住 Convert 1031 property to primary resident use

Moving In

The replacement property needs to be purchased with the intent of being a business or investment property. In 2008 the IRS issued a safe-harbor (Rev. Proc. 2008-16) that defines how to treat your replacement property for the two-year-period after the exchange in order to safe-harbor your exchange. A common belief is that you can then convert it to personal use. However, any type of conversion needs to be discussed with your tax advisor first. (ref. Key Information by IPX )

In addition, a rental property can be rented to your children. As long as the residents are not the owners, the property can be counted as an investment.  Rent has to be at market level and you need to file tax on this rental income. 

If you plan to make improvement, renovation, or even full new construction, the time might be counted into two-year-period. In this case you might not need to rent it out before you convert it into personal use. Again please confirm with your 1031 intermediary and your tax advisor. 

IRS 的注意点： 报税文件， 市场租金。租金由于特殊原因比如不是全年的出租、疫情的原因，可以低于市场。 亲属之间的出租，不需要广告；租赁合同也不太需要，稳妥起见，可以准备。 

Qualifications for the 1031 Exchange

In order to qualify for non-recognition of gain under an Internal Revenue Code Section 1031 exchange (also called a like-kind exchange), both the property that you give up (the relinquished property) and the property you acquire (the replacement property) must be property held for productive use in a trade or business or for investment.  This is sometimes referred to as the qualified purpose requirement.

By definition, your personal residence is not property held for investment or for use in a trade or business; therefore, it does not meet the qualified purpose requirement (although mixed use property may partially qualify – such as a duplex that you live in one unit and rent out the other or a home on the family farm). Thus, neither the relinquished property nor the replacement property in a 1031 exchange can be a personal residence.  Also, holding a home simply with the hope that its value will go up does not constitute investment.

But what if your intentions change after you have acquired the replacement property?  Is there a point at which you can move into the replacement property and convert it to your principal residence?  And if you reside in it and own it the required periods of time, can you use IRC Section 121 to exclude up to $250,000 of gain ($500,000 for married persons filing jointly) on the sale of your principal residence?

It can be done, but the key is your intention at the time you acquired the replacement property.  Did you honestly acquire it for investment purposes?  Did you have a significant change in circumstances after the acquisition which caused you to move into the property?  Can you prove your intention and that change in circumstances? If so, you may be able to re-characterize that 1031 exchange-deferred gain on investment property into gain on your principal residence and enjoy some or all of the $250,000 or $500,000 exclusion on its sale.

Guidelines to Convert 1031 Exchange Property into a Principal Residence

The principal question is your intent when you acquired the replacement property.  If you sincerely intended to treat it as investment property and not to move into it at the first opportunity, then you are on the right track.  How can you prove that intent?  If you can’t meet the safe harbor test discussed below, the best way is to actually use the property for investment purposes for a significant period of time after its acquisition.  If you rent the house out at fair market value for at least a year (according to some commentators), then you likely have shown you acquired the property with investment intent.  If you merely put up a good show, on the other hand, such as listing it for rent at an amount that is significantly higher than market, or not even listing it at all, the IRS will see right through that.

Other common sense evidence of intent can be gleaned from a review of the case law (i.e., other people’s mistakes):

• Don’t have plans drawn up for your principal residence or a vacation home just before or after the exchange.
• Don’t move into the house right after the exchange, even on a temporary basis.
• Don’t make the contract to acquire the replacement property contingent upon the sale of your principal residence.
• Use a reasonable and significant amount of advertising or listings in order to rent the property at a marketable rental amount.
• Document how you arrived at the asking price of the rent.
• Don’t start construction on preparing the house for your personal use right after acquiring it.
• Make sure that the restrictive covenants of the replacement property (or condo documents) allow it to be rented out.
• Document your efforts to rent the house out including names and contact information for potential tenants who looked at it. You may need to call them as witnesses!
• If you have a change of circumstances that caused you to move into the house, make sure to document that. Did you unexpectedly lose your job, get sick, disabled, divorced, married, or have to take in an elderly parent?

As mentioned above, the IRS has provided a safe harbor for determining how long a replacement property must be held as a rental before converting it into a primary residence or vacation home without invalidating the prior exchange.  The replacement property must be owned for at least 24 months immediately after the exchange (the qualifying period) and in each of the two 12-month periods in the qualifying period: (1) the taxpayer must rent the replacement property to another person at a fair rental for 14 days or more; and (2) the taxpayer’s personal use of the replacement property must not exceed the greater of 14 days or 10% of the number of days during the 12-month period that the dwelling unit is rented at fair rental.  It can be rented to a family member as a principal residence so long as market rent is paid.

In order to qualify for the Section 121 exclusion of gain, you must use the home as your principal residence for at least 2 of the last 5 years prior to its sale.  Also, Section 121 has a special rule for 1031 property that states that you have to own the home for at least 5 years (either as 1031 property or principal residence) before you sell it.  Finally, the amount of the exclusion you can claim will be prorated between the period of time it was your principal residence and the time that it wasn’t, and any depreciation you took will be taxable.

This is an area where each person’s facts and circumstances are different, so before you get too far down the path of converting a 1031 exchange property to a principal residence, spend some quality time with your tax advisor.

Best QI 2021 | 6 Best QI 

通常和过户公司、产权保险、紧密相关

QI: must be neutral and not advising in past 2 years. All monies held until exchange closes. Bounded. insured. 

Who can be your QI?

A few CPA have a sister company working on 1031 exchange. 

QI provides paperwork for CPA. 

Exchange Authority Associated with Fidelity Bank – a local bank in MA

IPX1031

Local business; under Fidelity National Financial Inc. which owns  Fidelity, Chicago, Lawyers Title; Fidelity National Title Group;

Insurance docs: 100 billion business; 30 m liability; 50 m each case. 

Ron.Ricard@ipx1031.com 408.483.1031 with a Chinese speaking officer

Regular: $1200; Inverse / improvement: $9000

First American Exchange: [out source to Philippines]

Depreciation recapture: 

For example, if business equipment was purchased for $10,000 and had a depreciation expense of $2,000 per year, its adjusted cost basis after four years would be $10,000 – ($2,000 x 4) = $2,000.

For income tax purposes, the depreciation would be recaptured if the equipment is sold for a gain. If the equipment is sold for $3,000, the business would have a taxable gain of $3,000 – $2,000 = $1,000.

It is easy to think that a loss occurred from the sale since the asset was purchased for $10,000 and sold for only $3,000. However, gains and losses are realized from the adjusted cost basis, not the original cost basis. The reasoning for this method is because the taxpayer has benefited from lower ordinary income over the previous years due to annual depreciation expense.

*** Regarding the repairs/improvements you made on the property before it was sold:  anything you do with the property before you sell it is not part of the exchange, whether it was a week before or ten years. If you want to “pay yourself back” for the money that you put out, that cash will be viewed as taxable “boot”. There may be some offsetting tax deductions for working on the property, but that would have to be addressed with your tax advisor. From an exchange point of view, any money that comes back to you at the close of escrow is a potential tax liability.

1. 200% rule & 95%  rule
2. QI must be neutral and not advising for past 2 years. 
3. 可能的装修项目: improvement exchange

• The Basics May 2021 by First American Exchange
• Key Information by IPX 
• Key Steps by IPX
• Qualified Intermediaries
• 1031 Exchange Topics with notes
• 1031 Exchange Reverse Topics
• FAQ： WHAT CLOSING COSTS CAN BE PAID WITH EXCHANGE FUNDS AND WHAT CANNOT?
• 未来可能的政策变化

====

• 选择交换公司，签合同； regular: 即时通知开设；improvement/reverse 提前2-3周
• 律师审阅合同
• 会计师做账报税

====

improvement and taxable boot. 【所有的装修必须在6个月内完成。由交换公司成立LLC 进行]

设计与运作

1. 交换公司：IPX1031,  (unregulated market, insurance)
2. CPA: 1) 500K for primary, 2) the rest for 1031
3. 716: 与买家合作
4. 252: 与卖家合作

正向（先卖后买）转化操作时间： 从出售的物业过户日算起：

1. 45 天内找到并提交3个感兴趣购买的物业
2. 180天内，新购买的物业过户。

• 反向交换费用： 9000+
• 正向交换费用：1200+
• 延迟交换费用（购买中附加出售物业的条件）：3000+

• 李晓薇律师 & Michael Lee
• 童光辉律师（408）799-9588, 网上有关地产执照等的信息汇编, teachertong@gmail.com; Line：tongesq2; WeChat：tongesq
• 更多房地产的华裔律师

面试问题： 举出两个帮客人打官司的案例。 

Pros: To buy first then sell. No pressure to locate properties in 45 days especially in a seller’s market. You would only get QI involved once you are ready to move forward with the purchase.

Cons: You might have to put forward funds for purchase for getting a loan can be a problem.

Deadline: You have to sell your property within the same 180 day window as a regular 1031.

We can pay all cash to purchase the replacement property. 

Either park the replacement property with a triple net lease or park the relinquished property by providing finance in the EAT. Which one is easier and less costly? 

***Our fee is the same, about $6000, including the cost of the LLC. We suggest we take title to the replacement property.  This way we can just assign the LLC to you at the end, instead of having to go through another escrow.

For both reverse and improvement exchange, how much is it?

***The incremental cost if you want to also do Improvements is $500.

***If you are subject to FIRPTA, doing an exchange will not prevent escrow from having to do their withholding (which is usually 15%).

转换公司破产的案例

Note:  The case is In re Land America Financial Group, Inc., et al., No. 08-35994-KHR, 2009 Bankr. LEXIS 940 (Bankr. E.D. Va. Apr. 15, 2009) and the IRS Information Letters are Info. 2009-0063 (Mar. 26, 2009) and Info. 2009-0066 (Mar. 26, 2009).

LandAmerica 1031 Exchange Services, Inc. is a qualified intermediary.  It filed bankruptcy at a time when 450 of its customers had parked approximately $420 million with the company and were waiting to complete their various exchange transactions.  The customers wanted their money back and claimed that LandAmerica held it either in escrow or in trust for them outside of the bankruptcy.  But, the bankruptcy trustee claimed that the customers’ documentation with LandAmerica never established trust or escrow accounts and, as a result, the customers were general unsecured creditors to be paid after LandAmerica’s secured creditors get paid (and then only on a pro-rata basis). 

The Bankruptcy Court agreed with the trustee – the customers’ funds were not held in trust or escrow.  The court noted that the words “trust” and “escrow” never appeared in the written exchange agreements the customers entered into with LandAmerica.  That’s a key point.  The court focused on the specific language of the exchange agreement as well as the structuring of the bank accounts.  The court noted that the exchange agreement transferred to LandAmerica “sole & exclusive possession, dominion, control and use of the Exchange funds” and specified that the exchanging party had “no right, title or interest in or to the exchange funds or any earning thereon.”  That’s probably not the typical language that a qualified intermediary would use.  The court also noted that LandAmerica commingled exchange funds with their operating funds.  That made it easy for the court to conclude that the customers intended LandAmerica to treat the funds as its own and made the relationship between the parties more like a debtor/creditor one rather than one more akin to a trustee/beneficiary.  So, the outcome of the case may be tied to the particular facts of the case and may not apply to all bankrupt qualified intermediaries that use less onerous language in exchange agreements – language that more closely follows the safe harbors in the Treasury Regulations.  But, based on a strict reading of the bankruptcy code as applied to the facts in the case, the customers were treated as unsecured creditors.  In addition, LandAmerica had invested the customers’ funds in auction-rate securities which are very difficult to value and may be substantially impaired given the current credit climate (that’s also an investment strategy that got LandAmerica in trouble – they ended up with worthless debt).  Also, the customers will have to fork over attorney fees for their representation in the matter.  

The Internal Revenue Code doesn’t stipulate what a qualified intermediary can or can’t do with customers’ funds – they are completely unregulated.  But, the court pointed out that the customers could have easily created a trust or escrow account with LandAmerica if they had wanted to.  Indeed, as mentioned above, existing Treasury Regulations provide safe harbors for parking funds with or without using a qualified intermediary.  That’s the tough lesson of the case – the problem was completely avoidable with proper planning.  In addition, the customers could have specified contractually how their funds were to be invested while their deals were pending.