The Simultaneous Exchange
In a simultaneous (also called concurrent) exchange, the old (relinquished) property and the new (replacement?) property are transferred concurrently. Investors performing such an exchange without the benefit of a Qualified Intermediary may risk losing the tax deferred status of the transaction, especially if there are three parties involved.
 |
The Tax Court in Keith K. Klein v. Commissioner, 66 T.C.M. 1115 (1993), has determined one simultaneous three party exchange as a fully taxable sale. Mr. Klein's closing escrow instructions simply assigned his rights to the proceeds from the sale of his property directly to the second closing for the purchase of his replacement property. The Tax Court stated that Mr. Klein had unrestricted control over, and thus the receipt of the funds in his transaction. Klein argued that the provision in his earnest money agreement stated that the buyer would cooperate in structuring a tax deferred exchange. He felt that the funds in escrow were already assigned to the seller of the replacement property and thus he had no control over the funds. The Court indicated that the cooperation clause would not control the constructive receipt issue. Unwary investors who do not utilize a Qualified Intermediary may be surprised to discover their transaction does not qualify for tax deferral.
 |
The use of a Qualified Intermediary involves the insertion of a fourth party who transfers ownership to the proper entities and insulates the exchanger from constructive receipt issues on the proceeds. The Qualified Intermediary becomes the accommodating party, thus protecting the Exchanger, buyer and seller. Although the Qualified Intermediary does not hold any proceeds in a simultaneous exchange, they function in the important capacity of creating a reciprocal trade; since they receive the relinquished property and acquire the replacement property for the exchange. The Qualified Intermediary also controls the flow of the exchange funds.
 |
The Qualified Intermediary provides the following important services:
Shields parties (Exchanger, buyer and seller) from certain liabilities; Ensures the preservation of safe harbor treatment under the 1991 Treasury Regulations; Provides a paper trail validating the flow and structure of the transaction; and Reduces the agent and closing officer's liability for the exchange structure.
 |
RealEstateColorado.Net, Inc. is available to assist Exchangers and their advisors with their exchange strategies. The Exchanger is always advised to discuss the intended exchange with their legal or tax advisor. RealEstateColorado.Net, Inc or it's Brokers cannot provide advice regarding specific tax consequences. Investors considering an IRC 1031 tax deferred exchange should seek the counsel of their accountant and attorney to obtain professional and legal advice.
Click on the link to our Secure Loan Server for a Colorado Home Loan
<a href="http://www.summitcountymountainproperty.com/blog/"
target="_top"><b>Breckenridge Real Estate
Blog</b></a>
Search Breckenridge Real Estate News on Breckenridge Colorado homes with our Breckenridge Blog
For additional resources visit:
Send a Free Colorful Colorado Post Card
Search for Homes and Land in the Summit County MLS
Denver Real Estate
Breckenridge Colorado Real Estate
Aurora Colorado Real Estate
Colorado Homes for Rent Attention Landlords and Property Management Companies.... Post a Full WEB PAGE AD and POST up to 5 PHOTOS for FREE! of your Colorado investment property on one of the best resources on the internet for Colorado investors to find good quality tenants !
Search For FREE! "Use Your Mouse to Rent Your House" tm
Articles © Copyright 2005 by RealEstateColorado.net, Inc.
Top of Page
|
