Introducing Stewart Institutional Exchange Services, LLC
And Its Partnership Installment Note Solution

Approximately one and a half years ago, Asset Preservation, Inc. formed Stewart Institutional Exchange Services, LLC, to serve the unique needs of our institutional customers. Under the guidance of Lou Weller, Managing Director, and Javier G. Vande Steeg, Executive Director, the Stewart Institutional team has proven to be very effective in providing innovative and technically sound strategies to unique and complex 1031 transactions. The following is an example of an innovative strategy which can be very effective.

Partnership Installment Note Solution

A common problem occurs when a partnership (or LLC taxed as a partnership) plans to sell an investment property and some partners want cash while others want to defer taxable gain by having the partnership complete a Section 1031 exchange. If the partnership disposes of its property by taking some cash at the closing of the relinquished property sale for distribution to those who want to “cash-out” and placing the balance of cash from closing with a Section 1031 qualified intermediary, it’s likely that the partners wanting to exchange will still be allocated taxable gain. This is the fact pattern that sometimes gives rise to a transaction commonly referred to as a “drop and swap,” where the partnership distributes tenancy-in-common interests in the relinquished property to some or all partners before the sale, hoping that this will allow each former partner to treat the transfer of the resulting tenancy-in-common interest as a separate transaction.

A number of technical and practical issues arise when a partnership attempts a drop and swap transaction, creating the need for alternatives. One attractive option involves the conversion of the cash intended to go to cash-out partners into an installment note. This allows the partnership to avoid recognizing gain and allows all gain associated with the installment note amount to be allocated to those willing and planning to take it, namely the cash-out partners to whom the note is transferred in complete redemption of their interests in the partnership. We refer to this as a Partnership Installment Note transaction, or PIN transaction. So long as a valid installment note is received as “boot” in a PIN transaction where the selling partnership also completes a Section 1031 exchange, the gain represented by the note is taxed only when principal payments on the note are received. This would be after the note is transferred to, and is held only by, the cash-out partners. Since Treasury Regulations provide that a Section 1031 qualified intermediary is expressly regarded as the transferee of an exchanger’s property in a properly structured exchange, we believe that the qualified intermediary is able to deliver a valid installment note (which must come from the buyer of property).

In many cases, a PIN transaction can offer a very effective solution to a partnership planning to sell property where some partners want cash and others want tax deferral in a 1031 exchange. Even where a partnership has already signed a contract to sell property, which some advisors think is an event that adds significant risk to a “drop and swap” transaction, or where a property distribution would violate loan covenants, the PIN option may be available. As with most solutions, there may be circumstances where the solution isn’t appropriate, such as when the partnership percentage interest of cash-out partners is relatively high, or where the partnership’s property has a high debt-to-equity ratio. Further, the cash-out partners must be willing to wait for at least a short period of time after the relinquished property closing to receive any funds, and until the beginning of the year following the closing to receive at least a portion of the funds. However, partners and their advisors who face the scenario described should definitely consider the PIN option among other alternatives available to them.

For more information, contact Stewart Insitutional Exchange Services, LLC at

Congress Threatens To Eliminate 1031 Exchanges

Congress Threatens to
                                        Eliminate 1031 Exchanges

Three separate tax reform proposals have been advanced by the House Ways and Means Committee, the Senate Finance Committee and the Treasury Department to either repeal or restrict tax deferral of gain from Section 1031 exchanges of like-kind property.

Like-kind exchanges benefit millions of American investors and businesses every year. 1031 exchanges encourage businesses to expand and help keep dollars moving in the U.S. economy.

Without the tax-deferral benefit that 1031 exchanges provide, small and medium sized businesses would not be as equipped to reinvest in their businesses, real estate values would decline, the U.S. economy would suffer, and businesses of all sizes would lose the opportunity to expand. The repeal of Section 1031 will cause a decline in real estate values as investors will be motivated to hold on to properties and to invest in more liquid, non-real estate investments with faster returns. The proposals effectively impose punitive and targeted tax increases on economically sound commercial real estate investment, the likely unintended consequence of which will be similar to implementation of 1986 tax reform modifications that resulted in a recession.

Take Action Now!
Send a strong message to congress that 1031 exchanges are a powerful economic tool. Learn more and voice your opposition to these proposals with these critical actions at

1031 Basics: Air Rights As Like-Kind Property

1031 Basics

Air rights, also known as “Development Rights,” are defined as unused rights to develop a property to the extent permitted under state or local law. As states and municipalities have acted to restrict and regulate new construction, the value of air rights has skyrocketed. In recent years, some states and local governments have adopted rules permitting unused air rights to be transferred to another parcel. These air rights can then be used to construct improvements, such as a building with greater floor space or height than would be permitted in the absence of those air rights. Accordingly, an owner of excess air rights may reap a substantial financial windfall by selling the Transferable Development Rights (“TDRs”) to the owner of another parcel who desires to develop the other parcel. Read More…

Another U.S. Housing Gauge Points Up

Sales of existing homes in the U.S. rose 2.4% last month to the highest level in a year, another bright note for the key property market. In another positive sign, the Philadelphia Federal Reserve Bank reported its gauge of nonmanufacturing activity in the mid-Atlantic region has climbed to 44.1 this month from 35.7 in September. Read More…

Five Recovery Bright Spots: From Life Support to Downright Lively

Data from the Bureau of Labor Statistics points to five cities that had some of the worst unemployment rates before and during the recession but also some of the most dramatic recoveries in recent years. Read More…

America’s 13 Hottest Real Estate Markets

America's 13 Hottest Real
                                        Estate Markets

Real estate data firm Trulia compiles statistics on both the amount of home price appreciation in each U.S. metro area as well as estimates of how overvalued homes are in those areas compared with historical trends. According to Trulia, even if many of these metro areas appear overvalued, there’s no reason to believe that we should expect a crash in prices anytime soon, as we’re nowhere near the price levels we saw in the years leading up to the housing crisis. By combining Trulia’s estimates on cities with overvalued real estate with figures on the speed at which prices have gone up year-over-year as of August 2014, Fortune Magazine has arrived at the 13 hottest real estate markets in the country. Read More…

Attend a Complimentary 1031 Exchange Webinar

Title: 1031 Exchanges & Tax Planning in an Environment of Increasing Taxation
Presenter: Scott Saunders, Asset Preservation, Inc.

Course Description:
This 90-minute course provides a concise and thorough overview of IRC Section 1031 tax deferred exchanges for accountants, CPAs and tax advisors. In addition to covering critical IRS time deadlines, like-kind requirements, and other exchange-related issues; the class will provide a summary of current developments including applicable Revenue Rulings, PLRs, and other IRS guidance on current issues related to exchanges.

Course Details:
Date: Friday, December 5, 2014 
9:00 a.m. – 10:30 a.m. (PST)
Cost: Free
Credits: 1.5 hour (Accountants & CPAs)

Click here to View Details and Registration Info at

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