News

Anniversary of the Passage of An Act Providing Consumer Protection to Clients

Legal 1031 Exchange Services, Inc. is please to celebrate the one year anniversary of the passage of “An Act Providing Consumer Protection to Clients of Exchange Facilitators for Tax Deferred Exchanges”. Todd R. Pajonas, President of Legal 1031 Exchange Services, Inc. spearheaded the two year effort to make this law a reality.

The 1031 Protection Act, which passed in two parts, became law when Connecticut Governor Daniel Malloy signed Public Act 135 on June 19, 2013, as well as Public Act 253 on July 11, 2013, which provided for a small modification to the original bill.

An IRC §1031 tax deferred exchange allows owners of real or personal property to defer the recognition of a capital gains tax they would have recognized when they sold their property. Exchanging allows investors to reinvest money into new business or investment properties which would otherwise have been paid to the government as capital gains tax. In one form or another the ability to defer a capital gains tax through an exchange has been part of the tax code for almost 100 years.

The 1031 Protection Act provides for protection of exchange funds deposited by investors with Qualified Intermediaries operating in the State of Connecticut by establishing investment standards, bonding requirements, and notification requirements to keep clients informed.

Connecticut State Representative John Shaban, who introduced and sponsored the bills during the 2012 and 2013 legislative sessions, clearly explained the bill’s intent by stating, “It is easier to stem a crises than respond to one. This bill offers reasonable and predictable consumer protection at no cost to the taxpayer.”

On March 15, 2012 Todd Pajonas, Suzanne Goldstein Baker, president of the Federation of Exchange Accommodators (FEA), and Anthony Lombardi, president of CATIC Exchange Solutions, testified in Hartford, CT on the need for the protections afforded by H.B. 5415 before the Committee on Banks. In 2013, during the following legislative year, Todd Pajonas once again testified before the Committee on Banks, and extoled the benefits of the 1031 Protection Act. House Bill 6339 and Senate Bill 911 were ultimately passed by the Connecticut Legislature and signed into law by the Governor.

Todd Pajonas, commenting on the one year anniversary, stated, “I want to once again thank Representative John Shaban who took the time to understand how this legislation will protect investors. This Act provided investors in Connecticut, the peace of mind and protections they deserve.”

Matthew K. Scheriff, Executive Vice President of Legal 1031 Exchange Services, Inc., further commented, “1031 exchange transactions help to fuel our economy by allowing investors to grow their investments. It is important for federal and state governments to provide legislative support and security so investors can have the confidence they need.”

Legal 1031 Exchange Services, Inc., with offices in Connecticut, New York, Massachusetts and Florida, provides qualified intermediary services for 1031 exchanges, as well as other real estate tax related services.

 

Link to Public Act No. 13-253

Link to Public Act No. 13-135

 

 

BEST OF BOTH WORLDS – IRC §121 and IRC §1031

A property owner selling a property that is held both as a primary residence and an investment property may qualify for tax benefits under both IRC §121 and IRC §1031. The issuance of Revenue Procedure 2005-14 provides taxpayers with clear guidance on the structuring and removed the uncertainty as to the qualifications of such transactions.

IRC §121 provides for an exclusion of the capital gain tax upon the sale of a principal residence in which the taxpayer lives in the property two out of the last five years (generally speaking). The maximum exclusion under §121 is $250,000 for those filing as single and $500,000 for those filing a joint return.

IRC §1031 allows property held for business or investment purposes to be exchanged for like-kind property while deferring most, if not all, of the capital gains related taxes upon the sale of the property.

In a dual-use property, whereby the property qualifies under IRC §121 and IRC §1031, the portion of the property where the owner lives as their primary residence may qualify for the primary residence exclusion under IRC §121. The portion of the property held for business or investment use may qualify for a tax deferral under IRC §1031.

A common example is when a taxpayer owns a four-family property. They live in one unit and rent out the other three units. In such situation, the taxpayer may qualify for the primary residence exemption on 25% of the property while also qualifying for the 1031 exchange on the 75% of the property representing the rental units. By utilizing both sections of the tax code, the taxpayer can maximize their wealth. In situations where the taxpayer has gains far exceeding the primary residence exemption, the combination of the tax strategies is a very effective means of preserving a taxpayer’s wealth.

Another strategy is whereby a taxpayer converts a previously purchased 1031 replacement property into their primary residence. They will have to hold the replacement property for a period of time to satisfy the investment intent requirement, but after such time, the taxpayer could elect to move into the property as a primary residence. After living in for several years, the taxpayer may be eligible for the primary residence exemption upon the sale of the property. By utilizing such strategy, the taxpayer has effectively converted a deferral of gain to an exemption of gain. The Service has clawed back on such strategy by implementing more stringent requirements to qualify for IRC §121 to include a five year holding requirement and also a pro-rated exemption amount excluding periods of non-qualified use.

Furthermore, in situations where a taxpayer will have a gain far in excess of the primary residence exemption, the taxpayer could elect to move out of the property and rent it out for several years. At the time of sale a few years later, the taxpayer could qualify for both IRC §121 (as they lived in the property two out of the last five years) and IRC §1031 (at the time of sale the property will have been established as an investment property). In this scenario, the taxpayer can benefit from the primary residence exemption, while utilizing the 1031 exchange to defer the tax on the gain in excess of the exemption amount.

We welcome you to contact Legal 1031 Exchange Services, Inc. to discuss any questions relevant to the strategies discussed above or any other 1031 related matters. We look forward to the opportunity to assist you and your clients!

The Resurrection of Reverse 1031 Exchanges

Reverse exchanges appear to be gaining traction in the current real estate market after numerous years of dormancy. The reverse exchange differs from a typical “forward moving” delayed exchange in that the exchanger acquires their replacement property first, and thereafter sells their relinquished property. In order to properly structure a reverse exchange, the qualified intermediary forms an entity known as an Exchange Accommodation Titleholder (“EAT”), which is a limited liability company (“LLC”), to take title to the replacement property. The EAT acts as a “straw man” to hold title until the exchanger sells its relinquished property.

When the seller transfers the replacement property to the EAT’s LLC a transfer tax is due and payable. Once the exchanger sells its relinquished property, the EAT transfers the membership interest in the LLC, which owns the replacement property, to the exchanger. The transfer of this membership interest does not involve a change in beneficial ownership since the EAT was merely acting as a “straw man” to structure the reverse 1031 exchange, and does not generally involve the payment of a second transfer tax.

However, the taxpayer does need to be cognizant of potential costs for duplicate transfer taxes in certain jurisdictions. In a recent transaction, Legal 1031 sought guidance from the New Hampshire Department of Revenue Administration (the “NH DRA”) to confirm that the State would not levy a second transfer tax upon the transfer of the property from the EAT to the taxpayer. Legal 1031 put forth the position on behalf of our client that such transaction should not be subject to an additional tax levy, and ultimately the NH DRA concurred with our position. The NH DRA previously charged a duplicate transfer tax in all reverse exchanges until Legal 1031 vigorously advocated its client’s position that no duplicate transfer tax should be due.

A Day with the NY Yankees

Participants of the Sept. 7th event took on-field tours of Yankee stadium and met former players CCIM, NYSCAR and SIOR hold networking and Socializing event at Yankee Stadium

A Guide to IRC § 1031 Tax –Deferred Exchanges

A Guide to IRC § 1031 Tax –Deferred Exchanges


By J. Michael Kirkland, Manhattan/Bronx Chapter President

The Manhattan/ Bronx Chapter held an evening CPE seminar in late October designed to impart the latest application of tax-deferred exchanges, including forward, reverse and improvement exchanges.

The course, called “A Guide to IRC § 1031 Tax-Deferred Exchanges,” also covered recent updates and tax court ruling that could impact your clients’ qualifications for tax-deferral treatment.

The speaker was Society member Matthew K. Scheriff, Executive Vice President of Legal 1031 Exchange Services Inc. Scheriff is an excellent speaker. He kept the presentation lively, and there were numerous questions. After the session, I received this comment; “The chapter should make the 1031 Exchange topic with Matthew as the presenter an annual event.”

If you would like any of the handouts offered during the course or if you’d like more information on 1031 exchanges, please contact Scheriff at 877-628-1031 or Matt@legal1031.com.

If you have any feedback on this program and/or suggestions for future CPE programs and/or social events, please contact me at J-michael.kirkland@db.com. If you were not able to attend, we look forward to seeing you at our future events.

Please visit the chapter Website for upcoming CPE programs and social events: http://www.nysscpa.org/leadership/listing.cfm?ID=1003&App=150. And bring a friend or work colleague to your next chapter event

And last, but not least, the chapter and Board would like to wish you and your family season’s greetings and happy holidays!

Todd Pajonas and Matthew Scheriff Published in New York Law Journal

Monroe, CT- August 13, 2007 – Legal 1031 Exchange Services, Inc., a national qualified intermediary for IRC §1031 tax deferred exchanges, is happy to announce that Todd R. Pajonas, Esq. and Matthew K. Scheriff, CPA, were published in the prestigious New York Law Journal, on August 13, 2007.

The article, which is titled VACATION HOME SALE AS §1031 EXCHANGE? After Moore ruling, holding primarily for personal use will nix eligibility, provides guidance for the viability of exchange a vacation or second home.

Taxpayers finally have some clarity from the IRS about what is permissible and what is not. This ruling will help our clients make an informed choice when deciding whether to exchange a vacation home, states Matt Scheriff.

This is the second article written by Legal 1031 Exchange Services personnel which has been published by the New York Law Journal this year.

About Legal 1031 Exchange Services, Inc.

Legal 1031 Exchange Services, Inc. is a national provider of qualified intermediary services for all types of like kind exchanges of both real and personal property, including delayed, simultaneous, reverse, improvement and other complex exchange structures. For more information please visit www.legal1031.com or call 877-701-1031.

Todd Pajonas Published in New York Law Journal

Todd Pajonas Published in New York Law Journal

Monroe, CT – March 20, 2007 – Legal 1031 Exchange Services, Inc., a national qualified intermediary for IRC §1031 tax deferred exchanges, is happy to announce that its President, Todd R. Pajonas, Esq., was published in the prestigious New York Law Journal, on March 12, 2007.

The article, which is titled REPORTING PRIMARY RESIDENCE SALES, The IRS has modified requirements when §1031 exchanges and partial rentals are involved, deals primarily with the reporting requirements for the sale of a primary residence which was originally purchased as an IRC §1031 tax deferred exchange.

“Although most people do not associate §1031 exchanges with primary residences there are areas in which they do intersect. This article helps to clear up some of the issues surrounding those unique types of transactions”, states Todd Pajonas.

This is the seventh article written by Todd Pajonas that has been published by the New York Law Journal.

About Legal 1031 Exchange Services, Inc.

Legal 1031 Exchange Services, Inc. is a national provider of qualified intermediary services for all types of like kind exchanges of both real and personal property, including delayed, simultaneous, reverse, improvement and other complex exchange structures. For more information please visit www.legal1031.com or call 877-701-1031.

Legal 1031 Exchange Services, Inc. Establishes Headquarters in Monroe, CT

Monroe, CT – February 1, 2007 – Legal 1031 Exchange Services, Inc., a national qualified intermediary for IRC §1031 tax deferred exchanges, is pleased to announce its new headquarters location at 731 Main Street – Suite D3, Monroe, CT 06468.

Todd R. Pajonas, Esq., who has previously established the Northeast operations of two national qualified intermediaries, and was the founder and president of a national qualified intermediary, is the founder and president of Legal 1031 Exchange Services, Inc. “Our new headquarters are ideally located to reach all of our clients in the Northeast,”? states Todd Pajonas.

The team at Legal 1031 Exchange Services, Inc. works closely with exchangers and their attorneys, realtors, accountants, and investment advisors to structure 1031 exchanges.

About Legal 1031 Exchange Services, Inc.

Legal 1031 Exchange Services, Inc. is a national provider of qualified intermediary services for all types of like kind exchanges of both real and personal property, including delayed, simultaneous, reverse, improvement and other complex exchange structures. For more information please visit www.legal1031.com or call 877-701-1031.