Section 1031 for Real Estate Professionals

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Class workbook for 3HR CE Real Estate class. Approved in NH, ME, VT.

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  • 1.FlawlessSection1031ExchangesforOver30Years Section 1031 For Real Estate Professionals 3 Hour Elective Course Approved by: The New Hampshire, Vermont & Maine Real Estate CommissionsEdmund & Wheeler, Inc. QI It is estimated that 20-25% of the nearly651 Main Street $200B in annual real estate transactionsP.O. Box 863could benefit from a Section 1031Franconia, NH 03580 Exchange, and that only 3% takeadvantage of this powerful tool. 603-444-0020 Edmund & Wheeler, as a QualifiedIntermediary (QI), has been facilitatingSection 1031 Exchanges for over 27 years. www.section1031.comWe have developed The Power of Sectionexchange@section1031.com1031 to provide a solid understanding ofSection 1031 basics and the strategic waysin which Section 1031 can be utilized and toassist real estate professionals inrecognizing opportunities for their clients. 2012 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided for educational purposes onlyand do not constitute tax, accounting, legal or investment advice.

2. Welcome To Section 1031 for Real Estate Professionals. This workbook has been designed to assist you during the course, and to provide a reference tool for you in the future. The session is broken down into three sections as described below. Web references have been made throughout the document so that you can do further topical research as required. Web references are indicated with a grey arrow. www.section1031.com If you have follow-on questions or concerns after you complete this course, Edmund & Wheeler is always available by email at exchange@section1031.com, by phone at 603-444-0020, or on the Web at www.section11031.com. Our practice provides real estate professionals with Section 1031 consulting at no charge!Section1providesyouwithanoutlineofthiscourse,anintroductionSectiontotheSection1031Exchangeandtheessentialelementsrequiredfor1 successfulexchanges. Introduction & 1031 Basics Thissectionlastsapproximately1hourandbeginsonPage3.Section2containscasestudiesofthevarioustypesofExchangesasSection wellasreallifeexamplesofactualtransactionsthatwillassistyouin2 developingyourownSection1031strategies.Case Studies & Real-life Examples Thissectionlastsapproximately1hourandbeginsonPage20.Section3outlinestheviablealternativesforExchangesthatcanbeSectionusedfordiversification,relocationorthedesireofaclientwishingto3 exitfromtherealestateinvestmentclass. Alternate Exchange Opportunities Thissectionlastsapproximately1hourandbeginsonPage38.1PageCourseSummaryMustHaveSection1031Concepts SummaryCommonlyusedphrasesandSection1031definitions.BeginsonPage57.Section 1031 Glossary 2008- 2012 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided foreducational purposes only and do not constitute tax, accounting, legal or investment advice. 2 3. Section1Introduction & 1031 BasicsContents Introduction.................................................................................................................................... 4 About Edmund & Wheeler, Inc. ..................................................................................................... 5 Course Outline .............................................................................................................................. 6 Primary Objectives of This Course................................................................................................ 6 What Is A Section 1031 Exchange................................................................................................ 7 The Five Critical Elements of an Exchange .................................................................................. 7 The Regulation .............................................................................................................................. 7 An Exchange at A glance .............................................................................................................. 8 Section 1031 (a)(1) IRS Code ....................................................................................................... 8 What is Investment Purpose? ....................................................................................................... 12 What Are the Benefits of an Exchange? ....................................................................................... 12 The Essential Elements ................................................................................................................ 12 Replacement Property Rules ........................................................................................................ 13 Real Property (What is Like Kind?) ............................................................................................... 14 Personal Property.......................................................................................................................... 15 Timing Is Everything ...................................................................................................................... 16 What Does The QI Do? ................................................................................................................. 16 Who Qualifies for an Exchange?................................................................................................... 16 The Qualification Tool ................................................................................................................... 17 The Five Most Common Section 1031 Misconceptions ................................................................ 19 2008- 2012 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided foreducational purposes only and do not constitute tax, accounting, legal or investment advice.3 4. ToomanyprofessionalsgetcaughtupinthebeliefthatSection1031isonlyaboutdeferringcapitalgains.Whileitisoneoftheremainingtaxdeferraltoolsavailable,itsactuallyaLOTaboutleverage.Clientsusingwhattheywouldhavepaidimmediatelyincapitalgainstaxestoimprovethequalityandvalueoftheirholdingsandplanfortheirfinancialfuture;isREALLYwhatSection1031isallabout.Section1031hasbeenapartoftheInternalRevenueServiceCodesince1921!LookatitasagiftfromUncleSam,butdonttellanyone. Ok,letsdothemath.Thesenumberssuggestthat investorspaidtheGovernmentover$10Bincapitalgains taxeswheninfact,theycouldhaveusedthismoneyin theirownportfolios,interestfree,foraslongasthey wouldlike.Waitaminute Whyisthisso?Wehavefoundthatmanyprofessionals thatwedealwithonadaytodaybasisareunclearofthe manystrategicusesofSection1031.Unfortunately,there arestillmanythatdontevenknowofitsexistence,and failtorecognizeevenitsmostbasicuses. Dontletyourclientsfindoutyoudidnttellthemthey couldhaveusedthispowerfultool. Asrealestateprofessionals,youhaveacertain responsibilitytoyourclientsregardingthetax ramificationsoftheirtransactions.Holdersofinvestment realestateshouldbemadeawareofthetoolsthatare availabletohelpthemstrengthentheirrealestate portfolios.Section1031isoneofthemorepowerfultools. Wehearoverandoveragainfromrealestate professionalshowthankfultheirclientswerethatthey understoodSection1031andhelpedthemtoexplorethe possibilities.Indeed,manyofourrealestatepartners havesavedtheirclientshundredsofthousandsofdollars incapitalgainexpense,givingthemmoremoneyto invest,whileearningmultiplecommissionsintheprocess! 2008- 2012 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided foreducational purposes only and do not constitute tax, accounting, legal or investment advice.4 5. In1981,Mr.GeorgeFoss,III,ourfounderandcoprincipalwasaprominentrealestate brokerinNorthernNewHampshire.AfterreadingabouttheconceptofaSection1031 Exchange,hewasimmediatelyintrigued,andsawtheopportunitytoaddaninterestingtwist tohisrealestatedealsbyhelpingclientstotakeadvantageofthisvirtuallyunknowngift fromUncleSam. 27yearsandthousandsofsuccessfulexchangeslater,GeorgeEdmund&Wheelerremains theforemostauthoritiesonSection1031intheNewEnglandstates,andhavecompleted exchangeswithclientsin48of50states. ThefirmhasprovidedSection1031educationandconsultingtohundredsofNewEngland realestateprofessionalsandhashelpedthemtosavetheirclientsover$100Millionin capitalgainstaxes. GeorgeFoss,Founder,QI JohnHamrick,QI 2008- 2012 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided foreducational purposes only and do not constitute tax, accounting, legal or investment advice. 5 6. Thiscoursehasbeendesignedtoassistyouin becomingproficientinthebasicsofaSection 1031Exchange. AnExchangecanbeaverycomplexandtime consumingendeavor.YourQIwillunderstand allofthemechanicsandthemyriadofrulesand regulationssurroundinganExchange.Ourgoal forthissessionistoprovideyoutheknowledge andtoolsyouwillrequiretoassistyourclients inrecognizingthetremendousopportunities thatSection1031provides. Section1031isnotjustataxdeferralvehicle.It isapowerfulpartofyourclientsoverall investmentstrategy,theirexitstrategyfroma business,andanintegralpartoftheirestate planning. Bottomlineisthatthetaxesthataredeferred canbeusedtoleveragelargerinvestments, diversifyportfoliosandsubstantiallyincrease wealthoveraperiodoftime. Dontworry,wewontgradeyou.Wewantto takeaninventoryofwhatourstudentsknow aboutSection1031priortothecourse. Whenthecourseisover,wewillretakethe quiz,andyouwillseehowfaryouvecomein justashorttime. GoodLuck! 2008- 2012 Edmund & Wheeler, Inc. All rights reserved. The enclosed materials and hypothetical examples are provided foreducational purposes only and do not constitute tax, accounting, legal or investment advice.6 7. Section1031fundamentallyisabouttherelocationandreallocationofyourclientsrealestateassets,allwithoutpayingcapitalgainstaxes.Relocationcouldbeacrossthestreet,oracrossthenation.Clientscanrelocatetheirholdingstoseveralmarket