1031 Exchange | TaxConnections

19 Oct 2021

Crypto And §1031 – Still Relevant In California!

In 2019, California only partially conformed to the section 1031 changes made by the Tax Cuts and Jobs Act. For individuals below specified AGI levels in the year an exchange begins, the pre-TCJA version applies. These levels are under $500,000 of AGI for MFJ and HH and under $250,000 for single.

Besides real property, what might individuals exchange? Well today, the most common non-real property exchanged by the roughly 95% of Californians who are still subject to section 1031 is cryptocurrency! Many types of virtual currency can only be acquired with bitcoin or another virtual currency.

Of course, few people are dealing with virtual currency, but the number grows each day.

What are the factors that should be considered to know if one virtual currency held for investment or business is like-kind to another?

Written by Annette Nellen | Posted in 1031 Exchange • Cryptocurrency

25 Aug 2021

New IRS Guidance Nixes Tax-Free Exchange Treatment For Cryptocurrency Swaps

New IRS guidance has confirmed that pre-2018 exchanges of Bitcoin, Ether and Litecoin do not qualify for Section 1031 exchange treatment. Prior to 2018, taxpayers were permitted to defer capital gains taxes under Section 1031 for certain exchanges of personal property (1031 is now limited only to exchanges of real property). The IRS’s rationale is that these were not exchanges of like-kind property and so were taxable even prior to tax reform. The IRS found that Bitcoin and Ether each had special roles in cryptocurrency trading because if taxpayers wanted to trade in other types of virtual currency, they had to first exchange the other currency into or from Bitcoin or Ether. Therefore, exchanges between Litecoin and Bitcoin/Ether did not qualify as “like kind”.

Written by William Byrnes | Posted in Cryptocurrency Swaps

10 Aug 2021

Cost Segregation And 1031 Exchanges – Better Together

Commercial real estate owners, developers, and investors have many tools at their disposal with which to develop a strong tax strategy. In addition to the stable of well-known strategies, the last few years have seen many expanded programs designed to incentivize real estate development. Two great examples are the 1031 exchange and accelerated depreciation, also known as cost segregation. Up until 2017, these two long-standing strategies have typically been mutually exclusive endeavors, as a byproduct of the 1031 process is a low step-up basis, which mitigates the effectiveness of cost segregation. However, the Tax Cuts for Jobs Act (TCJA) changed aspects of both strategies in a way that facilitates their simultaneous use.

Under the TCJA, 1031 exchanges are required to exclude personal property from the exchange basis. This very exclusion may trigger a taxable event.

Written by Bruce Johnson | Posted in 1031 Exchange • Cost Segregation

05 Dec 2018

1031 Exchange Overview

It used to be that the term “Section 1031 Exchange” or even “Like-Kind Exchange” was uncommon except in certain circles. But as the idea of tax strategies have reached more and more taxpayers coupled with the housing market’s fluctuation in recent years, 1031s have become increasingly commonplace.

So, what is a 1031 Exchange? In its broadest terms, a 1031 Exchange is the trade of one investment property for another. When most people think of trading one property for another, we think in terms of selling one property, paying any applicable taxes and then buying a new property in a separate transaction. With the 1031, this is not the case. If your transaction meets the 1031 requirements, you will have limited to no tax due at the time of the exchange. In other words, you are changing your investment without cashing out or recognizing capital gains. This is a good strategy for someone that wants to remain an investor but may no longer have an interest in their current property portfolio. As there is no limit on the number of times you can perform a 1031 exchange, the investment you originally had will continue to grow tax deferred until such time as you eventually sell. This can provide time to create a sound plan and tax strategy for paying the long-term capital gain rate at the time of sale.

Written by Kazim Qasim | Posted in 1031 Exchange