What if you own property outside of the United States and you want to utilize Section 1031 for a tax-deferred exchange of that property? Is that okay?
The short answer is, "It depends." It depends upon where your property is located and w
here the property you wish to acquire is located. Essentially it comes down to "US property for US property" and "foreign property for foreign property." The reason for this is that the code does not consider non-US property to be like-kind to US property. The Virgin Islands and Guam, though, are US territories and can be exchanged for all other US properties.
So if you're tired of that flat overlooking Paris's Parc Monceau, go ahead and exchange it for that beachfront place in Belize.
Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.
Ken Tharp
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
INTEGRITY. PRECISION. SECURITY.
Copyright © 2008 By Ken Tharp, All Rights Reserved. * Exchanging Foreign Property * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.
A Private Letter Ruling issued by the IRS relating to a taxpayer's intention to acquire development rights as his replacement property in a 1031 exchange is an interesting situation. In this case, the taxpayer sold a property as his relinquished property in the exchange and gave up his fee interest in that property. As his replacement property, he desired to purchase unused development rights to use on property he already owned in order to do more with the property than was allowed prior to the purchase of those rights. (See Private Letter Ruling 200805012.)
"Development rights" are one of the "bundle of rights" that one typically possesses with the ownership of real property. The "bundle of rights" include such rights as the right to possess, use, modify, develop, lease, or sell the land. Many of us are aware of mineral rights, which constitute one of the items in the bundle. If mineral rights are separated from the remaining items in the bundle, the owner is prohibited from doing such things as drilling for oil or mining the land. The right to develop is another of the rights within the bundle. If a property owner sells the development rights to his property, the remaining rights remain as before. Development rights can be sold to the owner of another parcel who wishes to develop his property and is unable to do so without those rights.
There are a couple of prerequisites to qualify. First, development rights must be considered real property by the state. And second, those rights must be perpetual, or at least if they are not explicitly granted in perpetuity, there must be no expiration date for the development rights so that they are effectively perpetual.
Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.
Ken Tharp
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
INTEGRITY. PRECISION. SECURITY.
Copyright © 2008 By Ken Tharp, All Rights Reserved. * Development Rights are Like-Kind to Real Property * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.
Do you plan to convert an investment property into your personal residence? The Housing Assistance Tax Act of 2008 that President Bush signed into law on July 30, 2008 carries a provision that affects the practice of excluding gain when you sell a property that was once used for another purpose, such as a rental property, and then converted into your personal residence. The effect of the new law is a restriction on the amount of gain you can exclude through Section 121, the personal residence exclusion section of our tax code.
Section 121 of the Internal Revenue Code allows a gain of up to $250,000 ($500,000 if you are married and
file jointly) with no tax obligation when you sell a house used as a primary residence for two of the previous five years. You don't even need to occupy the property for two consecutive years during the five year period; just two years out of the five in any form.
As of January 1, 2009, the new law reduces the amount of gain that you can exclude if you have used the property for any purpose other than as a primary residence. The reduction is applied on a pro rata basis by determining the percentage of years the property is not used as a primary residence purposes to the total years the property is owned by the taxpayer.
Sometimes examples help clarify things. Here's one: a married couple acquires a house that they use as a rental in 2009. The couple rents the house for four years, and then moves into it and uses it as their primary residence for the next two years. The couple sells the property at the end of year 6 with a gain of $300,000. Applying the old law, the couple would be eligible for the full $500,000 exclusion and would owe no tax. The new law requires the application of the proration described in the paragraph above. Two-sixths (two out of six years) of the gain, or $100,000 would be eligible to be excluded.
Exceptions to New Law:
A couple of interesting exceptions to this new restriction exist. First, periods in which the property is not used as a primary residence that occur prior to January 1, 2009 do not reduce the excludable gain. Using the example provided above, if the three year rental period occurs prior to January 1, 2009, the exclusion would not be reduced and the couple would be able to exclude gain on the sale up to the full $500,000.
A second interesting exception is if you convert property that you first used as your primary residence into investment property, it will not be affected by this new law. By way of example, consider this scenario: you own and live in a house for eight years, at which time you move out and rent the house for two years before selling it. Since your investment use of the property took place after your use as a primary residence, all of the gain accumulated over your 10 year ownership of the property can be excluded up to the $250,000/$500,000 limits.
There are also some limited exceptions for taxpayers who serve on "qualified official extended duty" or are temporarily absent due to changes of employment, health conditions or other unforeseen circumstances. Individuals in those situations should have their tax advisors review the new law to determine whether the exceptions could be of benefit to them.
Combining Exclusion with 1031 Exchange
One thing that did not change is the requirement to own property for at least five years if you acquire it in a 1031 exchange and subsequently convert it to your primary residence before it is eligible for the Section 121 exclusion.
If you convert your primary residence to an investment property and subsequently sell th
e property, you should be eligible to combine your Section 121 exclusion with a Section 1031 tax deferral for the gain that is not excludable under Section 121.
Hopefully this did not make your head spin too much. It is clear that some complicated situations could arise out of the application of this new law. Advance planning through consultation with your tax advisor is a must. The inclusion of a knowledgeable exchange expert in the planning process would be equally beneficial.
Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.
Ken Tharp
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
INTEGRITY. PRECISION. SECURITY.
Copyright © 2008 By Ken Tharp, All Rights Reserved. * Converting Investment Property to Personal Residence? New Limits on Gain Exclusion! * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.
A recent survey of farmland real estate brokers shows that the price of Iowa’s best farmland rose by an average of 6.6 percent from March 2008 through August 2008, cooling slightly versus the previous six month period. This survey was conducted by the Iowa Farm and Land Chapter 2 Realtors Land Instit
ute, as it has been done every March and September since 1978. The RLI is composed of real estate brokers who specialize in farm and land sales, farm management, and appraisals. The results were cited in an article in the Sunday Des Moines Register on September 17, 2008.
Troy Louwagie, the survey chairman as well as a real estate coordinator at Hertz Farm Management in Mount Vernon, had this to say about the results of the survey: “You’re seeing less demand for land for housing and commercial developments in the cities and a return to the more normal profile of 80 percent of buyers being existing farmers.” This compares to the same period last year during which approximately 60 percent of buyers being existing farmers.
For those who follow commodity markets, it is obvious that commodity prices have been a big contributing factor to the rising land values. While a plunge in commodity prices could precipitate a corresponding plunge in land values, Randy Hertz of Hertz Farm Management says, “Fortunately, farms today are in a much stronger balance-sheet position than they were 25 years ago” when land values declined by 70 percent. And at this point, there is nothing to indicate that a plunge in commodity prices is imminent or even anywhere on the horizon.
For the survey, the state is divided into nine districts. Only one of those districts had per-acre averages for high-qualify cropland of less than $5,000 in this survey, compared to four districts with an average lower than $5,000 in the survey over the same period a year ago. The averages in two of the districts exceeded $6,000 per acre.
Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.
Ken Tharp
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
INTEGRITY. PRECISION. SECURITY.
Copyright © 2008 By Ken Tharp, All Rights Reserved. * Iowa Land Price Survey Shows 6.6% Rise in Six Months * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.
About a month ago, the US Department of Agriculture published its annual report on the value of agricultural land in the United States. As you might expect, values were up nearly everywhere, but especially in the Midwest.
High prices on commodities such as corn, soybeans and wheat drove prices higher in the Northern Plains region, 
which encompasses states such as Kansas, the Dakotas, and Nebraska. Average farmland values increased 15.5 percent in that region, the highest increase on a percentage basis in the country.
On a per-acre basis, the most expensive farmland in the US was in Massachusetts - $12,200 per acre on average. Whew! Rhode Island and Connecticut were close behind. On the opposite end of the spectrum, an acre of farmland in New Mexico can be yours for an average of only $630.
According to the report, wheat increased 77 percent during 2007 on the Chicago Board of Trade. Soybeans soared 78 percent and corn rose 17 percent. These jumps are the primary reason for the increased values in farmland.
All of this took place and continues to take place in the face of stagnant or declining values in the broader real estate market. It is an interesting time, to say the least.
Please feel free to ask us any questions on this topic as well as any other exchange-related topics.
Ken Tharp
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
INTEGRITY. PRECISION. SECURITY.
Copyright © 2008 By Ken Tharp, All Rights Reserved. * Quick Update on National Farmland Prices *
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Iowa Equity Exchange is a nationwide, trusted provider of Qualified Intermediary services for all types of Section 1031 tax-deferred exchanges. Free consultation about potential exchange transactions.
IOWA EQUITY EXCHANGE meets the needs of investors and business owners who desire to defer capital gain taxes on real estate transactions involving property held for investment or used in a business. We provide Qualified Intermediary services for tax-deferred exchanges throughout the United States. All exchange structures are supported and available through Iowa Equity Exchange: delayed exchanges, reverse exchanges, improvement/construction exchanges, business asset exchanges, and parking exchanges.
Ken Tharp established Iowa Equity Exchange to serve investors of all levels of expertise and experience. He has been a real estate investor himself since 1979. During the past thirty-plus years, Ken has been involved in virtually all areas of real estate – including sales, new construction, property management, and extensive renovations. After personal experience in a number of §1031 tax-deferred exchanges, it became a passion to expose this invaluable process to as many others as possible—thus was born Iowa Equity Exchange.
At Iowa Equity Exchange, our commitment is to provide investors, business owners, and real estate professionals with the highest level of expertise. Security is available for every dollar of your funds while they are held in trust. We pledge to maintain the integrity of every exchange.
A “Qualified Intermediary” has the very specific role of guiding the investor through a §1031 exchange. We inform the exchanger of exchange requirements, produce the necessary exchange documents, provide the critical time monitoring procedures required, and manage the investor’s funds while in our possession. We are not engaged in the practice of law or accounting; we urge all clients to discuss the matter of exchanging with their trusted advisers. We will be happy to join in those discussions if desired by the parties.
If you are interested in learning more about Section 1031 tax-deferred exchanges, there is a lot of information on our web site, www.iowaequityexchange.com.
IOWA EQUITY EXCHANGE. INTEGRITY. PRECISION. SECURITY.
Our Mission Statement: Iowa Equity Exchange exists to provide Qualified Intermediary services, but to do so with the utmost of integrity in our actions, precision in our documentation, and security for our clients’ funds.
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Iowa Equity Exchange Is a proud member of the Federation of Exchange Accommodators, the only trade association dedicated to the representation of professionals who conduct like-kind exchanges under Section 1031 of the Internal Revenue Code.
Members of the Federation of Exchange Accommodators must read and agree to abide by a rigorous Code of Ethics that can be found at the association's web site, www.1031.org.
In addition to the FEA, Ken Tharp is a contributing blogger to the American Apartment Owners Association, a member of the Iowa Commercial Real Estate Association, the Two Rivers Real Estate Investors Association, and the Iowa Landlord Association. Ken speaks frequently to real estate investor associations, real estate company meetings, various Boards of REALTORS®, and a variety of other organizations.
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Testimonials
"Excellent service, I would highly recommend for a 1031 exchange."
David Elgin, West Des Moines, IA, 2/4/09
“I am so glad I decided to work with you on these exchanges. I just want to let you know that everyone who has been involved and in contact with you has expressed excessively how nice you are to explain everything to them as the process progresses and how patient you have been with all of us who are ignorant of this business. You have made this so easy for everyone involved. Thank you from the depth of my heart. With all of my hysteria about the whole sale transaction, you have been the one smooth factor I could count on.”
Lora J, Coralville, IA 1/22/09
“Thanks for your prompt attention to all of our paperwork and your very clear instructions. This could have been complex and cumbersome, but you made it smooth and easy.”
Jean I, Olympia, WA 1/22/09
“Excellent work, I didn’t have to worry once. Ken made a very smooth transaction out of this and I’m very grateful. Will do business again with Iowa Equity Exchange.”
Frank S, Pleasant Hill, IA 12/5/08
“We work with Ken directly as our sole source for 1031 exchanges involving our clients. Ken's ability to give direction on where our clients need to head financially with property exchanges is an asset that we are very proud to offer at LandAndGame.com. The opportunity to work with Ken has been a real blessing for our business and will allow to us increase the bottom line for our clients investments across the board. In short, if you're an active investor in farm ground, hunting land with income, or duplexes and apartments, your time spent with Ken will pay dividends exponentially in your property portfolio."
Rod White, owner, LandandGame.com
“I first worked with Ken in 2007 after meeting him online. As a real estate agent and auctioneer serving my clients needs well is important to me. Ken spent hours on the phone with me taking the mystery out of 1031 equity exchanges and putting them in EASY to understand terms. I refer ALL of my 1031 exchange clients to Ken because he has taken EXCELLENT care of every client I have ever sent him. He is in my opinion the best in the business. He makes it so easy!”
Jason Smith, Land Specialist and Auctioneer, Loess Hills Land
"I contacted three 1031 exchange companies before selecting Iowa Equity Exchange for my 1031 exchange. Ken Tharp of Iowa Equity Exchange seemed to be the most knowledgeable person and was willing to answer all of the questions that I had about 1031 exchanges. The 1031 exchange went smoothly following the guidance provided by Ken Tharp.
Max Peterson, Stanton, Iowa, 6/8/08
“As a banker, I found your service to be very helpful.”
Paula Sears
“Being a new [real estate] agent, I’ve not dealt with 1031 exchanges yet. I found your presentation to be both informative and easy to understand.”
Rachelle Bryan
Our Current Advertising Campaign
Here is a screen shot of our advertising campaign currently appearing in Homes and Land magazine, Iowa Lawyer, the Iowa Society of CPAs publication, and a couple of other places.
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