Back up Properties
The first line of defense in preventing failed 1031 Exchanges is to develop a sound investment/identification strategy which includes identifying suitable back up properties. Tenant in Common, Delaware Statutory Trust, and Triple Net Leased properties can be particularly effective as backup identifications.
Structured Sales/Installment Sales Treatment
Installment agreements enable the failed exchangor to spread payments (and tax liability) over multiple years.
Exchangor must amend the exchange agreement before the 180 day exchange period expires, shifting the obligation to return funds from the qualified intermediary to a newly assigned company (insurance company).
Income from an installment agreement is broken down into three components:
- Return of basis
- Taxable capital gain from relinquished property
- Interest earned on funds held by insurance company
Benefits of a Structured Sale/Installment Sale include:
- Defer taxes on capital gains to the year in which payments are received
- Earn guaranteed rate of return on principal (equity from sale of property). Interest earned accumulates tax deferred until withdrawn.
- Flexible payment streams can be established, including when payments begin and how long they are paid out.
Please contact us at 877-255-1031 for more information on how to avoid or potentially rescue a failed 1031 exchange.
