Javier G. Vande Steeg, President of Asset Preservation, Inc. (API) interviewed Low Weller, J.D. Partner at Weller Partners LLP, and discussed highlights of the recently released Section 1031 Real Property Treasury Regulations.

Mr. Vande Steeg: Lou, I know you have been involved at a high level in the development of the final “real property” regulations, can you tell us a little history regarding the passage of the new regulations?

Mr. Weller: When the 2017 Tax Cuts and Jobs Act (TCJA) bill changed Section 1031 to apply only to real property, the issue of what is “real property” for this section became more central than when that issue only affected whether something was “like-kind.”  The Regulations under Section 1031 had never defined real property before, but had addressed what real property was like kind: examples being the familiar rules that improved real property is like-kind to unimproved real property and that a tenant interest in a lease of real property with a term of more than 30 years is like-kind to a fee interest in real property.

Since there is now a bright-line test between real property and everything else in terms of qualifying for Section 1031 deferral treatment the IRS decided some clarity was needed and embarked on the Regulations project.

They also decided to solve a problem that had come up in the wake of the TCJA in deferred exchanges due to the new restriction.  Where money from the sale of relinquished real property was used to buy replacement property that consisted of both real property and personal property, advisors got concerned that the qualified intermediary safe harbor from constructive receipt could be compromised if a QI utilized real property proceeds to buy non real estate assets.  Since many real estate transactions involve the purchase of non-real estate personal property (i.e. a hotel purchase also involving lots of furniture), these advisors sought a safe harbor allowing the use of relinquished real property proceeds to buy non real estate property assets as long as the predominant use was to buy real estate.  That’s the genesis of the “incidental property” element of the final regulations.

Read the Full Interview »

From October 17 – December 31, 2020

Do Not File Your 2020 Income Tax Return Until Your Exchange Has Been Fully Completed.

The time frame you have to complete the acquisition of your replacement property ends at midnight on the earlier of the 180th day after the date you transferred the relinquished property OR the due date (including extensions) for your income tax return for the taxable year in which the transfer of the relinquished property occurs. (U.S. Treasury Regulations section 1.1031(k)-1(b)(2)).

This means if the 180th day following the closing of your first relinquished property falls after the due date for your 2020 tax return (this year, for individuals, April 17, 2021, you must file an application for extension of time with the IRS to extend the due date. If you do not file for an extension, you will NOT be able to acquire any replacement property in your exchange after your tax return due date.

Remember: If your exchange is not completed by the due date of your tax return — FILE AN EXTENSION.

If you have any questions, please call your Exchange Counselor at:

National Headquarters: 800.282.1031  – OR –  Eastern Regional Office: 866.394.1031

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