All State 1031

 
Contact Us Now

Cincinnati Office PHONE: 513-412-3481
TOLL FREE: 800-427-7212
FAX: 513-412-3482
Providence Office PHONE: 401-421-3763
TOLL FREE: 877-395-1031
FAX: 401-453-5847

 
 
 

OUR FAMILY OF
STRATEGIC TAX SERVICES

Foreclosures

Exchange Basics

Foreclosures

Exchange of Property to Avoid Foreclosure

  1. It is not uncommon for real estate developers to acquire real estate that was 100% leveraged. However, to what extent can a taxpayer transfer property with no equity in a Section 1031 exchange and thereby avoid the tax consequences that would otherwise result from a foreclosure (or a deed in lieu of foreclosure)?
  2. Furthermore, disposing of the property in a taxable sale could trigger suspended passive losses from the property, and the gain may be passive or non-passive, depending on the facts and circumstances.
  3. Alternative minimum tax considerations also come into play.
  4. A deed in lieu of foreclosure can permit some timing benefits, compared to a straight foreclosure.
  5. Where the "Qualified Intermediary" safe harbor is used the IRS may have great difficulty in successfully contending that a transfer to an intermediary who retransfers the property to a receiver or the bank in lieu of foreclosure is not eligible for non-recognition treatment under Section 1031. It is understood that the IRS National Office had a ruling project on this topic under consideration. Until further guidance is issued, taxpayers should realize that there is some risk in going forward with such an exchange.

 
Back to Top