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IRS Begins Study of Like-Kind Exchanges

I just came across this report by the Treasury Inspector General for Tax Administration recommending a study of the validity of 1031 Exchange filings. After writing a series of blog articles on Like-King Exchanges, I thought I'd send this out as a finale of sorts. Seems like they feel not all filings have been valid, so they are going to perform a study to make recommendations

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treas.gov/tigta/auditreports/2007reports/200730172fr.pdf.

About The Author

As Broker and Co-Owner of Century 21 First Realty, a Tallahassee Real Estate Brokerage business, Joe Manausa utilizes his MBA and 17 years of Tallahassee Real Estate experience in order to help clients with large investment opportunities while also taking the lead in growing the Century 21 First Realty operation. Additionally, he heads an experienced team of fellow West Point and Annapolis Graduates who run Tallahassee Real Estate Holdings and other entrepreneurial ventures. He contributes to a daily Web Blog which focuses on the Tallahassee Real Estate Market, as well as other topics important to Tallahassee, Florida. For more information on Joe and Century 21 First Realty, please visit his company website at www.manausa.com

Posted by Joe Manausa - Tallahassee Real Estate on 10/09/2007 05:31 AM

Comments (13)

1031 exchange, real estate tax benefits

Originally posted at: Tallahassee Real Estate: IRS Begins Study of Like-Kind Exchanges

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13 Comments on IRS Begins Study of Like-Kind Exchanges

OCT

2007

Good heads up Joe, thanks. The IRS had alot to do with the HUD decision to stop down payment assistance and I am sure they will have some bearing here as well.

Thanks Keith & Robin. It's kind-of been overdue I guess....

Joe - I wondered when they would get around to this!

You and I both Eva. I can't imagine that anyone would cheat the system????

DEC

2007

You are so right. There has been so much abuse within the like kind exchange industry that it is long overdue. You might want to caution your clients when they are talking about using certain like kind exchange qualified intermediaries that allow investors to back date, alter or amend their identification forms after the 45 day deadline.

Yes, it's an area I'm sure they will find lots of abuse.

DEC

2007

This reminds me of an article I read in the NY Times on 12/6.

It was about an ex-IRS agent who is being hired by States to investigate partnerships cheating on their returns.

They're now seeing that at least 20 billion dollars of gain from real estate tax shelters went unreported in 2005.

Partnerships typically report little or no profit for the years that the property is being depreciated.

But in the year of sale, partnerships tend to "misreport" depreciation taken as long term capital gains taxed at 15% instead of recaptured at 25%.

And when we're talking partnerships, we're talking BIG NUMBERS.

APR

2008

I am just about to do my first 1031 Exchange. My accountant wants it, I feel it's a lot of legwork for little benefit, especially if they raise the capital gains amount.

Donna, any time I get to "save" a tax dollar and reinvest to for my future, I figure it is well worth the effort. If you were going to sell your property anyway, the 1031 is not really any different than any other sell and rebuy. Make sure you are selling because you no longer want the property. A refi would give you as much working cash, typically, as a sale.

Joe:

This Treasury Report came out in September 2007. The IRS expects to begin the study in August of 2008. We have already seen one result from this report. In February 2008, the IRS issued Revenue Procedure 2008-16, which created a safe harbor for vacation homes. We are expecting the IRS to issue additional guidance.

Donna:

The benefit in doing a 1031 exchange is that you will be able to use the money you would have to pay in capital gains tax as equity in your next investment property. Although, the capital gain rate is expected to go up in 2011 (current legislation sunsets in 2010) it is still more cost effective to do a 1031 exchange now (especially if your accountant is advising you that it would be beneficial). Please feel free to call me with any questions you may have regarding the process. 877.646.1031

Thanks Lisa, great feedback.

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