You have probably had clients that were in a 1031 exchange and could not find investment real estate that was suitable for their investment needs. They begin to panic when they are getting close to the end of their 45 calendar day identification deadline.
45 Calendar Day ID Period
Clients must identify prospective like-kind replacement property with in 45 calendar days of the closing on the sale of their relinquished properties. The stress can be pretty severe when the end of the client's 45 calendar day deadline is approaching, and they begin to look for alternative options.
It is partially your job to help steer them in the right direction and out of harms way. There are certain programs that have cropped up that cater to these distressed clients looking to defer their taxes at the last minute.
Land Banking
One of those programs is referred to as land banking, where the client acquires land and "banks" it until the developer needs it. The developer will then acquire the property back from the client when they are ready to proceed with the development of the property.
There are many different programs and structures within this strategy, so it is extremely important that you strongly suggest the client have the land banking program reviewed by their legal and tax counsel to ensure that the program will qualify for tax-deferred exchange treatment.
The issue is whether the client has the intent to acquire and hold the property for investment or whether they are merely parking their funds in the investment until they find more suitable investment property to 1031 exchange into.
It is clear that the investor needs to have the intent to hold the property for investment. Intent to merely hold for a short period of time and then sell back will most likely not qualify for 1031 exchange treatment because the client is holding for sale and not holding for investment.
It is buyer beware, so always encourage your clients to have legal and tax counsel review any proposed programs before they move forward with it.
Comments(0)