A Fully-Stocked 1031 Toolbox

What kinds of assets are eligible?

In brief, any business use asset that’s bought, sold and appreciated or depreciated. 1031 exchanges are best known and most commonly used in Real Estate. However, the benefits of Section 1031 also apply to tangible assets, including:

• oil & gas production equipment (incl. Christmas tree assemblies, derricks, piping, tubing and casing, etc.)
• energy generation and transmission equipment
• heavy equipment
• fleet and transportation assets
• manufacturing equipment
• certain intangibles, like mineral rights and licenses, are also eligible for 1031 exchange
  

Types of 1031 Exchange

Tax law allows several kinds of 1031 Exchange. Accruit and Network International can help with all of them.

Simultaneous Exchange: In a simultaneous exchange the relinquished property and the replacement property transfer concurrently. This process isn’t as simple as transferring the relinquished property and acquiring the replacement asset on the same day. To avoid the risk of the exchange being deemed a taxable sale by the IRS, it’s important to involve a Qualified Intermediary (QI).

Forward Delayed Exchange: The sale of the relinquished asset and purchase of the replacement property don’t need to occur at the same time. The exchanger first sells the relinquished property and then acquires the replacement property within 180 days of the sale. If the replacement property is not purchased within 45 days of the sale of the relinquished property, the exchanger must identify the replacement property by midnight of the 45th day.

Reverse Exchange: An exchanger may not be able to sell the relinquished property before purchasing the replacement asset. In these cases, the exchanger can structure the transaction as a reverse exchange. Reverses are more complex than simultaneous or forward exchanges and require an Exchange Accommodation Titleholder (EAT) to take ownership to either the relinquished or replacement asset until the relinquished asset is ultimately sold to a buyer.

Improvement Exchange: An exchanger can purchase replacement property and use some of the proceeds to make improvements to the asset as long as the exchange is structured as a “build-to-suit” or improvement exchange. This process is often used to renovate an existing building or to construct a new building on vacant land; it can also be employed for upgrades to many kinds of tangible assets. Like the reverse, an improvement exchange is more complex and requires the EAT to take possession of the replacement property.

Program Exchange: Businesses with extensive asset portfolios often find it advantageous to conduct forward exchanges on an ongoing, programmatic basis. For these enterprises, repetitive exchange programs handle multiple assets and exchange transactions with significant documentation pursuant to a master Program Exchange Structure.