It is important for Breckenridge and Keystone CO real-estate owners who are contemplating a 1031 exchange to educate themselves fully. This includes learning about the 1031 exchange formats, understanding a bit about the history of the law, and seeking out a Qualified Intermediary.
Just in case the interested parties with these properties in Summit County resort communities are thinking of trying to exchange Keystone real estate and/or Breckenridge real estate with little professional help, they need to know the 1031 exchange formats. There are several with daunting titles including the:
- Simultaneous
- Two-party swap
- Alderson exchange
- Delayed exchange (most common)
- Safe Harbor
- Multiple sales/acquisitions
- Reverse exchange
- Improvement exchange
The laws have had plenty of time (90 years) to become more and more complicated. Here is a little history of the 1031 exchange:
1918 - First income tax law
1921 - Section 202 of Internal Revenue Code states that gain or loss not recognized on exchanges of like-kind property
1924 – Non-like-kind exchanges excluded from Section 202
1928 - Code section changed to Section 112(b)(1)
1954 - Section 1031 enacted
1975 - Starker exchange; Tax court approves delayed exchange
1977 - Tax court reverses prior ruling, invalidating delayed exchanges
1979 - 9th Circuit reverses, reinstating initial ruling and creating delayed exchange
1984 - Congress amends Section 1031; 45-day identification period and 180-day exchange period and partnerships excluded
1991 - Regulations 1.1031 passed
2002 - Revenue Procedure 2002-22 issued by IRS; 15 points to clarify TIC interests
Last and probably most important is the role of the Qualified Intermediary (QI). This is a person or entity that can legally hold funds to facilitate a 1031 exchange. To be qualified, the intermediary must not be relative or agent of the exchanging party. As an exception, a real-estate agent may serve as an intermediary if the current transaction is the only instance in which the agent has represented the exchanging party over the past two years.
The use of a QI is essential to completing a successful 1031 exchange. The QI performs several important functions in the 1031 exchange process, including creating the exchange of properties, holding the exchange proceeds and preparing the legal documents.
If a real-property owner fits the criteria for the use of this law, it will work to his/her benefit in the long run. It is advisable to seek profession advise on using the 1031 exchange to accomplish investment goals. Contact The Walsh Group for personalized service.
Articles © Copyright 2006 by The Walsh Group
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