There is a reason why so many 1031 tax deferred exchanges end up failing. In essence, they are all but doomed in this economic shutdown. This is due to the fact that the stipulations as set forth by the Internal Revenue Service (IRS) are difficult to abide by in the best of times. They are all but impossible to conform to now since the States such as California, Massachusetts and New York are currently in lock down.
Being in lock down makes it almost impossible to defer the capital gains tax payment through a 1031 exchange simply because the real estate investor cannot find a replacement property under even the extended IRS deadlines.
It’s certainly not even a easy task to timely find reinvestment real estate under normal economic conditions. Do you really want to go out and start touring replacement properties in person in the current situation that we are all living through? Do you trust that a video tour is enough to make such a large investment decision? Add to the fact that you most close on the purchase of the new investment property within 180 days of selling the old investment property.
Also, current economic conditions in addition to preventing viewing and inspection of reinvestment property has delayed the financing aspects of many transactions. Can you get your due diligence completed or get your appraisal on time and can your lender fund on time so you can complete and close your purchase within IRS deadlines?
That means you need to conduct all of your due diligence, including scheduling inspections, line up financing if you are not paying in cash, and close on the deal all within a six (6) month window. Once again, that may work when things are normal, but now when we are experiencing an economic shutdown. How can all of these puzzle pieces possibly be put together in time? That is why saving a failing 1031 transaction has become such a hot button topic as of late. The good news is that there is a credible solution.
Installment Sales can be skillfully implement to acquire a 1031 account balance to save failing 1031 exchanges. The process works in the following manner. The real estate investor exchanger sells their 1031 account transaction balance on an Installment Sale Contract, which is the legal mechanism to achieve their tax deferral intent. The seller has numerous options to customize an Installment Sale to achieve their financial goals and tax deferral needs.
The purpose of these installment payments is to spread out the distribution of funds over a specific amount of years. In turn, it spreads out the capital gains tax payments over the same amount of specified years. In essence, the seller is paying the capital gains tax yearly as they receive the installments as opposed to at one time if they had received the proceeds in one payment, which in its self may further reduce one’s tax impact.
If you need help saving a failing 1031 transaction, please contact Tax Deferred Sales today. TDS has specifically developed a proprietary tax expertise Installment Sale structure to save failing 1031 exchange transactions. Our team of experts specializes in providing customized strategies that delay tax impact. TDS takes great pride in assisting sellers of appreciated assets in deferring the capital gains tax that greatly enhances the ability to grow your net worth. Our company was founded by a LLM tax attorney with over 20 years tax deferral experience and expertise with a singular focus on assuring sellers delay of taxation.