1031 Like Kind Exchange Tips

1031 Like Kind Exchange Tips -Identifiying Properties 

With Real Estate being so hot, we have seen such an increase in 1031 Like Kind Exchange’s in the past few years.

Here are a few tips to consider when thinking about doing the exchange:

The Basic 1031 Identification Rule Is:

The Exchanger has only 45 days from the day of closing on its relinquished property to identify possible replacement property.

WARNING: Section 1031 and the IRS regulations thereunder have strict requirements for the identification of replacement property.

Identification of all replacement property must be made in writing, must be signed by the Exchanger, and must be delivered to the Qualified Intermediary on or before midnight of the 45th day.

The Exchanger may identify any type of investment or business real property in the USA, including a single-family rental, apartment building, hotel, office building, warehouse, vacant land, shopping center, etc.

The Exchanger/Taxpayer may not identify replacement property or amend its identification after the 45th day has expired.

Identifying Multiple Properties:

The Exchanger may identify more than one property, as follows:

(1) The Exchanger may identify as many as three (3) properties, regardless of their total value (known as the “3-Property Rule”) See Example # 1 below; OR

(2) The Exchanger may identify any number of properties provided their aggregate fair market value on the 45th day does not exceed 200% of the aggregate fair market value of all of the Exchanger’s relinquished property on the date of its transfer (known as the “200% Rule”) See Example #2 below; OR

(3) The Exchanger may receive, by the end of the Exchange Period, Replacement Property which the Fair Market Value of, is at least 95% of the aggregate Fair Market Value of all of the Replacement properties identified (known as the” 95% Rule”) See Example #3 below.

“The Exchanger is not required to acquire all the property it has have identified. Therefore, many gurus in our industry recommend that the Exchanger identify alternative properties should the closing on the Exchanger’s preferred property fail for any reason. Any property acquired prior to the 45-day Exchanger’s identification expiring, counts as an identified property.”

EXAMPLE #1 – 1—3 PROPERTY RULE:
Mr. and Mrs. Trembling (Exchangers) sell their investment property that they have owned for 17 years for the sum of $695,000.00. They, within 45 days of the relinquished transaction, e-mail to their Qualified Intermediary a list of three (3) properties for the following amounts: Property # 1: $1,200,000.00; Property #2: $500,000.00; Property # 3; $400,000.00.

As long as the Exchangers purchase property of equal or more value than their relinquished property ($695,000.00) any tax they may have owed will be deferred. There is NO dollar amount limitation on the properties they have identified. The only limitation they have using this rule is that they can only identify 3 properties.

EXAMPLE #2 – 200% RULE:
Mr. and Mrs. Anderson (Exchangers) sell their investment property that they have owned for 3.5 years for the sum of $500,000.00. Within the 45-day time limit, they e-mail to their Qualified Intermediary, the following list of possible Replacement Properties: #1: $150,000.00; #2: $300,000.00; #3: $250,000.00; #4: $100,000.00; and #5: $199,000.00.

The Exchangers are allowed to identify any number of properties, but they cannot total together more than 200% of what they sold.

The 5 properties they identified combined total: $999,000.00, which is under the $1,000,000.00) they would be allowed to identify and therefore their Identification is valid. They do not have to purchase all of these properties, but if they want to defer all of their gains, they must obtain at least $500,000.00 of replacement property.

EXAMPLE #3 – 95% RULE:
Mr. Thomas Franklin (Exchnager) sells his investment property for the tidy sum of $800,000. He identifies the following properties as possible replacement properties: #1: $600,000; #2:$ 300,000; #3: 900,000; #4: 700,000 and #5: $200,000.

The total valuation of all the properties together is: $2,700,000.

He cannot use the 200% rule because he has identified more than 200% of his relinquished property’s selling price ($800,000 x 200% = $1,600,000). But he can still use the 95% rule. He must purchase 95% of the valuation price of the properties he identified. That would be: $2,565,000 ($2,700,000 x 95% = $2,565,000). If he purchases less than the 95%, his 1031 exchange will be disqualified.

After reviewing the above 3 Rules for Identification, most Exchangers select the 3 Property rule, because it is a lot easier. It has no dollar amount restrictions, but the exchanger is limited to only 3 properties for identification purposes.

Source: Stephen Wayner of Liberty 1031.

DISCLAIMER: We always recommend that the taxpayer consults with their tax and/or legal counsel on all matters dealing with the Internal Revenue Serice.

Purchased a New Property In Florida? Beware of Solicitations!

blog1

As many of you know, the process of purchasing a new home, or commercial property involves quite a few important documents that you need to be familiar with. Title and Deed documents are given to you by your attorney. Usually, these documents are also accessible online via your county’s property appraiser’s website FOR FREE. In instances where you have purchased a new property, you may receive a letters in the mail that might look like an official county or state document which states that you will need to take additional steps to finalize documentation, or that you will need to order vital documentation that shows ownership of your property.

blog2

This mailing will have your name, parcel number, and property address on it. What Record Transfer Services is doing might not be illegal; however, these services are usually already performed either before or at closing by a title company or real estate attorney. A title search is usually performed by a title company or an attorney, who researches the vested owner, the liens or other judgments on the property, the loans on the property and the property taxes due before the closing is done. If duplicates are needed or documents are misplaced from your records, these documents can usually be found via your county property appraiser’s website or you may contact your real estate attorney.

blog3

Given that the letter includes a deadline for which to request for these documents, it appears to be an official document, however, make special note of the disclaimer in fine print at the bottom of the letter: “This product or service has not been approved, or endorsed by any government…” Generally, if you receive a solicitation asking for more money after your closing, it is not necessary and is rarely legitimate. If you are not sure or you would like more information, contact your Florida Real Estate attorney or title company as soon as possible.

What is a Phase 1 Environmental Site Assessment and Do I Need One?

Many times we get asked the following question: – Do we really need a Phase 1 Environmental Site Assessment?

Well, the answer is, it depends, but it is highly recommended.

images (5)

The purpose of a Phase 1 Environmental Site Assessment is to use a consistent approach to identify any existing or potential environmental conditions that may be present or affect a real estate property in question. Purchasers of real estate must conduct an “all appropriate inquiry” to qualify for the innocent landowner defense under the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CLERCA”). Having a Phase 1 Environmental Site Assessment (“ESA”) conducted on the proposed real estate will mitigate any damages and protect your assets by proving that you as a purchaser legally met your due diligence obligations.

Tips For Purchasing A Hotel in Florida

Before looking under classified ads for hotels for sale, you must first start by having an idea of your needs and expectations for your new business. The location, appearance, and structure of the property will all affect how to choose to move forward with the purchase. Looking at the history of the business is a good place to start, as well as potential ways to make it more profitable for you in the long run.

Speaking with an experienced attorney will offer detailed information and advice about a specific property after you have gone through a preliminary process of consideration. Check out the location well before deciding to buy there. A hotel is unique in the sense that business can be affected by so many different factors. If it is on the coast or by a beach, you may only get bookings during certain months once a year. In that case you may count on seasonal income whereas in a big city or town, you will want to be near businesses that travel and year-round tourist attractions. Also be careful of locations that are overpopulated or riddled with competition.

Experienced operators have an advantage in that they have established repeat clientele and are usually well known. Make a list of questions to be answered when looking at hotels for sale. That way, if they don’t pass the checklist, they won’t be worth considering. This step could save you a lot of time if you know what you’re looking for. Some of these elements could include staff members, food service options, how many rooms or guests on average, tenant demographics, and the Unique Selling Proposition for that hotel.

Wyndam

Two key ratios that are important to note include the revenue per available room (revpar) and the staff costs to turnover. These numbers can help you calculate how profitable the hotel has been in the past and how much you will be making potentially. You can also ask current ownership on their approach with the hotel to see if  they have done anything new recently as far as management and/or renovations. The third major aspect of buying a hotel is the building.

It is necessary to first get a full survey and valuation taken, and also review the lease terms and conditions (if any) before moving forward with a purchase. Take a look at the physical condition of the rooms and public areas, making sure all fire and health regulations and codes are met. Check documentation for up to date licenses and everything you may need in order to make sure there is no more unfinished business on your part. A Real Estate Attorney can assist you by gathering all documents and information regarding the closing and offer any advice you may need for your new business venture. Contact us at Gulati Law and see how we can help you acquire a Florida Hotel!

 

Source: BizJournal

Pic Credit: Wyndham Hotels

New Laws Regarding Florida’s Durable Power of Attorney

Unexpected controversy has been exposed due to a Florida law enacted in October of 2011 regarding the Durable Power of Attorney (“hereinafter DPOA”).  Prior to the change in law it was possible to prepare a DPOA that became effective upon incapacity. However, the new law no longer allows the “upon incapacity” language, thus making DPOAs effective immediately upon execution. DPOAs that were drafted before the enactment have been “grandfathered” into the new law.

Power of Attorney

This has become an issue for many individuals, because banks and financial institutions are requiring all DPOA documents to be written in the new law due to recent economic recession and financial fraud.  These lending institutions are thereby disregarding the law that allows acceptance of DPOAs prepared before the new law.

This disregard is allowed through a statute in the law that gives banks the authority and time to review DPOAs to determine acceptance according to their own policies.  This can cause hardships for those with DPOAs with the old laws, especially those relocating from another state or country, and individuals already incapacitated or incompetent.

This issue could jeopardize the security of your future and you should not delay updating your DPOA. If you do not already have the new Durable Power of Attorney, consider working with us at Gulati Law to draft a new DPOA that is right for you and also compliant with Florida Law.

 

Source: Elder Law Answers

The Advantages to a Florida Land Trust

A Florida Land Trust is an estate planning device which offers numerous benefits to property owners. The most important benefits of the land trust are privacy and avoidance of probate. With a land trust, no one needs to know what real estate you own either during your life or at your death. Avoiding probate you also avoid attorney fees and months delay in distribution of your property to your heirs.

By using a land trust with trusted attorney and trustee, there will be no public record of your ownership of the real estate in the trust. The public records will list the corporation or attorney as trustee and the tax bill will be sent to the trustee. The property will be managed by you or by your agent and income tax returns will be filed by you in the same way they would for property in your own name.

realestate

The main advantages of a Florida Land trust are:

  • Privacy;
  • Keep the purchase price secret;
  • Keep sale price secret;
  • Keep change of ownership private;
  • Avoid liens;
  • Avoid probate;
  • Ease of control;
  • Ease of management;
  • Ease of negotiations;
  • Savings on title insurance;
  • And many more.

If you are thinking about setting us a Florida Land Trust, or have more questions for an Florida attorney, please contact us today, we will be happy to help.

Contact Us Today!

    Gulati Law