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BUSINESS EXCHANGE:
If an owner of a business seeks to dispose of the business, doing so in a ‘section1031 exchange can result in significant tax savings. The business owner may want to dispose of one business in one metropolitan market in order to focus on another metropolitan market. Business types that may be eligible for 1031 exchange are; distributorships and franchises, including cable televisions, beer distributorships, restaurant franchises, gas station franchises, laundry franchises, and Professional service practices are just a few.
The exchange must be broken down in to individual exchanges by category of “like-kind” assets. For example, the value of the office equipment relinquished must be matched against the value of the office equipment received. Intangible asset are a key aspect of line-of –business exchanges. These include FCC licenses held by broadcast; subscriber lists held by newspapers, magazines, and cable television franchises, patents, copyrights, technological know-how etc. IRS regulations provide that goodwill and going-concern value are never like-kind assets.
Basic Exchange Rules:
Two basic rules must be met to completely defer income taxes on the gain realized from the sale of the relinquished business:
- The purchase price of the replacement business must be equal to or greater than the net sale price of the relinquished business; and
- All cash or other proceeds received from the sale of the relinquished business must be used to acquire the replacement business.
Exchange Timeline:
The exchanger has up to 180 days 180 days from the close of escrow on the relinquished to acquire the replacement business. The first 45 days of that period is called the Identification Period. During the identification period, the investor must identify the replacement business. The identification must be in writing, signed by the exchanger, and received by the Intermediary within the 45-day period. Failure to meet the identification deadline or complete the exchange within 180 days results in a failed exchange.
Types of Exchanges:
1. Delayed 2. Reverse 3. Construction 4. Business & Personal 5. Simultaneous
Selecting an Intermediary:
From the simplest exchange to the most complex, we have built our reputation on expertise, financial strength, and customer satisfaction. Lawyers Asset Management, Inc. is also a member of the Federation of Exchange Accommodators, a professional trade association for Qualified Intermediaries under IRC Section 1031. All cash proceeds controlled by Lawyers Asset Management, Inc., are deposited in custodial accounts with major financial institution, and a fidelity bond also protects all clients’ proceeds.
REVERSE EXCHANGE:
The reverse exchange is a specialized exchange arising from a situation in which an exchanger must acquire the replacement property prior to selling their relinquished property. Since it is impossible to exchange properties when you own both properties at the same time, a reverse exchange is required if the replacement (purchase) property escrow must close before the relinquished (sale) property escrow closes.
Types of Reverse Exchange Transcction:
Type A: The Intermediary assigns into the purchase contract and takes title to the replacement property. The exchange has 180 days from close of escrow on the replacement property to sell the relinquished property in order to complete the exchange.
Type B: The Intermediary takes title to the relinquished property from the exchanger before the exchanger acquires the new replacement property. The exchanger has 180 days to sell the relinquished property in order to complete the exchange.
By Wai-Yew Lam – 800-989-1031, Cell Phone: 925-212-1727, Fax 510-835-8770 |