Specializing in Tax-Deferred Property Exchanges


Exchange News

American Equity Exchange attempts to stay current on some additional & various aspects of 1031 exchanges that you may want to click on below to learn more about the process behind a tax deferred exchange.

Exceptions to 1031 Exchanges

Many times tax advisors who represent clients involved in Section 1031 exchanges are impacted by sections in the Internal Revenue Code other than Section 1031.

While a lot of attention is focused on what type of property qualifies as “like kind” and other compliance issues under Section 1031, sometimes forgotten are the tax provisions which clearly override or may override Section 1031. Thus, depreciation recapture, at-risk recapture, partnership debt relief and debt allocations among multiple exchange groups can cause a tax liability for what, on the surface, looks like a tax-free exchange. Awareness of these exceptions allows taxpayers to more accurately determine their out-of-pocket costs when entering into exchange transactions.

The sections in question are Sections 465, 722, 731(1), 752(a) and (b), 1031, 1245 and 1250. Exchangers should keep their CPAs or other tax advisors “in the loop” at all stages in the exchange process. This will hopefully insure that these other potential pitfalls can be avoided altogether or at least allowances can be made in advance by the taxpayer.

For more information refer to Hamill, James R. “Full House of Section 1031 Exceptions Beat Two of a (Like) Kind,” Practical Tax Strategies (October 2000)

Washington State Senate Bill 6295:  "Washington state law, RCW 19.310.040, requires an exchange facilitator to either maintain a fidelity bond in an amount of not less than one million dollars that protects clients against losses caused by criminal acts of the exchange facilitator, or hold all client funds in a qualified escrow account or qualified trust that requires your consent for withdrawals.  All exchange funds must be deposited in a separately identified account using your taxpayer identification number.  You must receive written notification of how your exchange funds have been deposited.  Your exchange facilitator is required to provide you with written directions of how to independently verify the deposit of the exchange funds.  Exchange facilitation services are not reguluated by any agency of the state of Washington or of the United State government.  It is your responsibility to determine that your exchange funds will be held in a safe manner."