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Questions Frequently Asked About 1031 Exchanges & Our Service
Will my funds be insured?
The security of funds and property held by the Qualified Intermediary in a 1031 exchange is always of primary importance to Exchangors and their advisors. In addition to the established reputations of our principals, National 1031 Exchange Service is bonded per occurrence by a Fidelity Bond that insures National 1031's clients against loss from dishonest acts that include embezzlement, fraud and theft. In addition to the internal controls required by the Fidelity Bond underwriter, our procedures for handling client funds ensure the greatest degree of safety and confidentiality. All client funds by National 1031 are deposited with Colorado Capital Bank in Denver, Colorado, or other financial institutions whose deposits are insured by the Federal Deposit Insurance Corporation.
Where geographically do you handle exchanges?
National 1031 Exchange Service participates in 1031 exchanges anywhere in the United States and the U.S. Virgin Islands and can easily coordinate with any title company, closing escrow company, attorney, broker, or other closing agent to set up and execute an exchange. From our offices in Boulder, Colorado, we handle 1031 exchanges in all time zones with minimal inconvenience to the parties involved.
Can farmers exchange farming machinery or livestock?
Yes. These are personal property exchanges and are substantially different than real property exchanges. The regulations for personal property exchanges, Reg §1.1031(a)-2, permit the exchange of depreciable personal property held for, "productive use in trade or business" for like-kind property. Unlike real property transactions that permit exchanging investment real estate of any other kind of investment real estate (e.g., vacant land for improvement), personal property exchanges require that the acquired personal property be of "like-class." Classes of depreciable personal property can be found in the North American Industry Classifications System (NAICS). Examples of personal property exchanges in an agricultural context are as follows:
Farm and ranch tools and machinery.
Livestock for livestock, provided that the livestock is held for production or income (i.e., dairy and breeding) and not primarily for sale.
Irrigation equipment.
Equipment for handling livestock.
Must farmland be exchanged for farmland?
No. A 1031 exchange requires that investment property be exchanged for other investment property. A farmer may decide that he or she is ready to invest in nonfarming real estate. Farmland can be exchanged for an office building, apartment building, or single-family residences, so long as the property is held for investment.
We have owned our farmland for many years. Now that we want to sell, why should we think about a 1031 exchange?
In one word, taxes. The number #1 reason you want to do an exchange is to defer the capital gain taxes you normally would owe if you simply sold your property. There are many factors that must be examined in determining if a 1031 exchange is right for you. When you speak with your tax or financial advisor, which is an absolute must, he or she should be ready to discuss and compare the tax ramifications of selling your property outright versus engaging in a 1031 exchange. A 1031 exchange may allow you to move your investment into real estate that would provide income and reduce your labor and management duties.
I am selling farmland, but not leaving the business of agriculture. How can a 1031 exchange benefit me?
Examine why you are selling the land in question. Are you expanding your operations? Acquiring a higher grade of land? Changing the location of your farm? These are all valid reasons to do a 1031 exchange of farmland and defer the tax liability that would come with a straight sale. The reasons that compel the condo owner in Los Angeles to purchase a couple of single-family residences in Houston possibly are the same reasons you may want to do a 1031 exchange.
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