Richey, May & Co. Real Estate Products    
  
   
   
  Real Estate Products

Like-Kind Exchanges

A like-kind exchange (1031 exchange) is a method of deferring the gain on the sale of real estate or personal property. In most cases, a taxpayer will have to pay a 20% federal capital gains tax and a state tax on the sale of an investment or business property. Exchanges are granted authority under Section 1031 of the Internal Revenue Code ("IRC §1031") and the Regulations promulgated therefrom. When an Exchange is conducted in accordance with the Code and Regulations, the tax on the gain, which is realized by virtue of the sale of the property, will be deferred into a newly acquired property.

Exchanges can save a taxpayer in taxes while providing them with a solid future investment. However, exchanges can be very intimidating and confusing unless taxpayers are represented by competent advisors. RMC has many years of experience structuring exchanges of all complexities. RMC can structure and advise taxpayers on the following type of exchanges:
  • Partnership Exchanges (where property is contained in a partnership)
  • Reverse Exchanges (where the new property must be purchased first)
  • Build-to-Suit Exchanges (where a new building is being built to replace old)
  • Multiple Property Exchanges (where one or more properties are bought or sold)
  • Personal Property Exchanges (exchanges other than real estate)

Exchanges usually involve attorneys, title companies, real estate agents, banks, and accountants. RMC will act as the client's advisor to make sure all of the parties involved in the exchange perform their required tasks accurately and correctly.

Costs Segregation Study

For any business that has just constructed or purchased a significant building, apartment, warehouse, etc. this engagement seeks to allocate the acquisition or construction costs of the property into separately depreciable units. In other words, we investigate the property and segregate the cost of a building into personal property and real estate. Personal property is depreciated four to five times faster then real estate and therefore properly segregating the costs leads to significant tax savings.

Taxpayers that have had a piece of real estate for a few years may still be able to obtain the same tax savings. Taxpayers can apply to the IRS to have their method of depreciation changed. This does not ensure that your new method (that accelerates the cost recovery of your property) will be accepted. However, if it is accepted, it usually leads to significant tax savings.

Real Estate Transaction Structuring

There are numerous tax considerations when a corporation, partnership, S corporation, trust, or individual purchases real estate. RMC has extensive experience in consulting taxpayers in structuring real estate sales and purchases. Taxpayers should take care in discussing the following topics with their tax professional prior to engaging in a real estate contract, sale, or purchase:
  • Like-Kind Exchanges
  • Family Limited Partnerships
  • Qualified Personal Residence Trusts
  • Primary Residence Rules
  • Vacation Rental Rules
  • Choice of Entity
  • Corporate Double Taxation
  • S corporation Distributions
  • Qualified Nonrecourse vs. Recourse Debt
  • Limited Liability Companies & Limited Partnerships
  • At Risk Rules & Passive Activity Rules
  • AMT Consequences
  • Transfer & Property Tax
  • Synthetic Leases

RMC's real estate expertise will ensure that the taxpayer structures the real estate purchase or sale in a way that minimizes present and future taxes, while reducing the risk that the property will affect the taxpayer’s other properties or investments in a negative manner. Often taxpayers wait until it is too late to call a competent tax professional to advise them on structuring real estate transactions and often it is too late to undo any harm already done. The bottom line, real estate is a very complex area of tax law and no taxpayer should enter into a real estate transaction without consulting with a tax professional that specializes in the area.

Asset Protection Planning

See real estate transaction structuring and individual tax planning sections.