History of the Exchanges
When income taxes were first imposed in 1918, gain or loss recognition was required on all disposition of property. Tax Deferred Exchanges were first introduced in 1921 allowing owners of investment property to defer the payment of capital gains that is normally due upon the sale of investment properties. Since inception, there have been five major amendments made to the Tax Deferred Exchange as we know it today.
One of the most important changes was the 1979 Starker decision in the U.S. Court of Appeals enabled the non-simultaneous or "delayed" Section 1031 Exchange to qualify for tax deferral. This gave investors the time necessary to find desirable Replacement Property by using an Intermediary.
The most significant change made to the Treasury Regulations was effective June 10, 1991 and validated the delayed 1031 exchange and simplified the exchange process. By providing specific guidelines, these Regulations were welcomed by real estate investors who were previously uncertain of the viability of Section 1031 Exchange transactions.
The IRS has finally approved Reverse Exchanges. In Revenue Procedure 2000-37, which was effective 9/15/2000, the IRS provided guidelines on how to structure a Reverse Exchange.
The new rules apply to a Reverse Exchange where title to the Replacement Property is held by the Intermediary ("Parked" with the Intermediary) until the Relinquished Property Sale closes. The new rules also apply to a Reverse Exchange where title to the Relinquished Property is held by the Intermediary ("Parked" with the Intermediary) until a Real Buyer closes the purchase of the Relinquished Property.
Revenue proceeding are frequently changing the perspective of tax deferred exchanges. Contact us for the most current information that could affect your tax deferred exchange. |
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