American Equity Exchange attempts to stay current on some additional & various aspects of 1031 exchanges that you may want to click on below to learn more about the process behind a tax deferred exchange.
Exceptions to 1031 Exchanges
Many times tax advisors who represent clients involved in Section 1031 exchanges are impacted by sections in the Internal Revenue Code other than Section 1031.
While a lot of attention is focused on what type of property qualifies as “like kind” and other compliance issues under Section 1031, sometimes forgotten are the tax provisions which clearly override or may override Section 1031. Thus, depreciation recapture, at-risk recapture, partnership debt relief and debt allocations among multiple exchange groups can cause a tax liability for what, on the surface, looks like a tax-free exchange. Awareness of these exceptions allows taxpayers to more accurately determine their out-of-pocket costs when entering into exchange transactions.
The sections in question are Sections 465, 722, 731(1), 752(a) and (b), 1031, 1245 and 1250. Exchangers should keep their CPAs or other tax advisors “in the loop” at all stages in the exchange process. This will hopefully insure that these other potential pitfalls can be avoided altogether or at least allowances can be made in advance by the taxpayer.
For more information refer to Hamill, James R. “Full House of Section 1031 Exceptions Beat Two of a (Like) Kind,” Practical Tax Strategies (October 2000)
