1031 Exchange Trends and Info for 2020

As we start this New Year, below are key trends, issues, and points to remember regarding 1031 Exchanges.

1031 Trends / Market Update

2019 was another record year for 1031 Exchanges. What’s in store for 2020?

Commercial real estate is predicted to have a very good 2020, supported by resilient economic activity, low-interest rates and the attractiveness of real estate investment.

With an election year, government leaders will push to keep economic activity strong. A recession or major economic disruption is unlikely. However, tax reform continues to be an issue that could drive transactional activity. Republicans want technical corrections. Many of the Democratic Presidential candidates are promoting substantive changes. The elimination of FIRPTA to encourage foreign investment is a bipartisan issue that could spur real estate transactions. Also, proposals such as mark to market, a wealth tax, increases in the tax rates, and increase or complete elimination of capital gains all could impact investor behavior. An increase in ordinary income tax or capital gains tax rates would make like-kind exchanges more valuable to taxpayers, but could also make 1031 a larger potential target for tax revenue seekers.

With an expected growth in investment and commercial real estate transactions, we are expecting another strong year for 1031 tax-deferred exchange transactional activity.

1031 Exchange Checklist

A 1031 Exchange transaction requires planning, expertise, and support. Here’s a checklist outlining key steps in your exchange.

  1. Choose your 1031 Qualified Intermediary (QI)
  2. Consult with your tax professionals
  3. Include Cooperation Clause language in your purchase and sale agreement
  4. QI prepares your exchange documents
  5. Start searching for Replacement Property
  6. Sign all documents QI prepares
  7. Sell your Relinquished Property
  8. Identify your Replacement Property
  9. Enter into contract on Replacement Property
  10. Contact QI once Replacement Property escrow is opened
  11. Close on Replacement Property
  12. QI transfers funds to complete your purchase
  13. Your exchange is complete

2020 Capital Gains Tax Bracket

2017 tax reform indexed the Long-Term Capital Gain rate breakpoints (whether a 15% or 20% rate) to inflation. The actual rates didn’t change for 2020, but the income brackets did adjust slightly. The breakpoints for 2020 are as follows: married filing jointly – $496,601+ and single filers – $441,451+. The capital gains brackets are based on “Taxable Income” whereas the Net Investment Income Tax thresholds are based on “Adjusted Gross Income”. For more information

Tax Straddling: Pay Taxes in 2020 or 2021?

If your transaction closed at the end of 2019 and you are unable to find a new property to identify or purchase the property that you have identified, you may still be able to defer paying taxes on your capital gains until 2021. Since you will receive your 1031 funds back in 2020, in certain circumstances, since you did not have control/possession of your funds until 2020, the IRS may allow you to pay taxes on your 2020 tax return, which are due in 2021. This is in accordance with IRC Section 453(d) and requires your accountant to file specific tax forms. Ask your accountant if you are eligible to take advantage of this “mini” tax deferral.

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IPX1031 Choose the Experts

IPX1031 focuses solely on 1031 Tax-Deferred Like-Kind Exchanges. As the national leader in 1031 Exchange services, IPX1031 has the financial assurances, security and expertise essentials to protect your funds and provide answers and guidance throughout the exchange process. When you choose IPX1031 as your Qualified Intermediary, you can be confident that your exchange will be handled expertly and that your funds will be safe, secure, and available when needed. Contact IPX1031 to discuss your 1031 Exchange solution.

1031 Exchange and Defer? Or Sell and Pay Taxes?
Opportunities of the 1031 Exchange
How Important is Your Qualified Intermediary?
Capital Gains Estimator
IPX1031 Knowledge Center

Learn More about IPX 1031

Greg Burns
Senior Vice President
IPX1031
[email protected]
(626) 233-2773 – Mobile
www.ipx1031.com/burns

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Information provided by IPX 1031, please call Greg or go to the IPX site for current updates as information is subject to change. Please speak with your Tax Professional for tax advice.

©2020 Investment Property Exchange Services, Inc. — a Fidelity National Financial Company

IPX1031 10 S LaSalle Street 31st Floor Chicago, Illinois 60603 United States (888) 771-1031

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