Simultaneous Exchanges

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Simultaneous Exchanges – Capital 1031 Exchange Company

Simultaneous Exchanges - Capital 1031 Exchange Company

A simultaneous exchange occurs when the relinquished property and the replacement property are transferred on the same day to complete the exchange. This seemingly simple transaction is littered with potential problems. Taxpayers performing such an exchange without the benefit of a Qualified Intermediary may risk losing the tax-deferred status of the transaction.

Using a Qualified Intermediary, such as Capital 1031 Exchange Company, assures the taxpayers that they do not have actual or constructive receipt of their funds, thus ensuring the preservation of safe harbor treatment under the Treasury Regulations. During the simultaneous exchange, Capital 1031 Exchange transfers the property to the proper entity and instructs the escrow/closing agent with respect to the disposition of the sale proceeds.

Capital 1031 Exchange Company specializes in four different types of exchanges.

Terminology for 1031 Exchanges

Adjusted Basis

The adjusted basis is equal to the purchase price, plus capital improvements, less depreciation.

Boot

In an exchange, any funds not used to purchase the replacement property are considered boot, as well as the fair market value of any non-qualified (not “like-kind”) property received in the exchange, such as cash, notes, furniture, supplies, or reduction in debt obligations. The Exchangor pays taxes on the boot to the extent of recognized capital gain.

Capital 1031 Exchange Company

A Qualified Intermediary as defined in the Internal Revenue Service Treasury Regulations.

Direct Deeding

At the direction of the Qualified Intermediary (“QI”), title is conveyed directly to the ultimate owners without the QI actually having to be in the chain of title, thus avoiding the imposition of additional transfer tax.

Exchange Period

Time allowed for the Exchangor to acquire the replacement property in a delayed exchange, or the time allowed to dispose of the relinquished property, in a reverse exchange. In a delayed exchange, the time period begins on the day the relinquished property is transferred, or the exchangor relinquishes control of the property. It ends on the earliest of the 180th day after the transfer, or if no extension is applied for, then on the day the Exchangor’s tax return is due.

Exchangor

The property owner(s) seeking to defer capital gain tax by utilizing a 1031 Exchange.

Identification Period

Within 45 days after the close of the relinquished property, the replacement property must be identified in accordance with one of the three adopted rules.

Like-Kind Property

Refers to the nature or quality of the property the Exchangor gives up or receives in the exchange, such as real property for real property. Real property does not have to be similar in use, such as raw land for raw land. Raw land may be exchanged for any other real property that will be used in a trade or business or held for investment.

Real Property located in the United States and Real Property located outside the United States are not like kind.