Start Tax treatment of liquidating trusts

Tax treatment of liquidating trusts

These limitations provide that the exchangor may not, pursuant to the documentation, have a right to receive money or non-like-kind property until the earlier of— Regardless of whether the exchangor subsequently receives money or boot from the QI at the end of an exchange, IRS Form 1099-S box 2 should be 0, and box 4 should be checked. Can impounded funds held by the QI be used to pay closing costs?

This rule applies to costs that relate to the disposition of the relinquished property or acquisition of the replacement property, as well as expenses listed as the responsibility of a buyer or seller in the typical closing statement under local standards.

An involuntary conversion as a result of an eminent domain proceeding under IRC 1033(g), however, is an exception to this section’s like-use requirement and uses a like-kind standard similar to section 1031.

This postponement of tax can be continued with successive exchanges (stemming from the original property that was relinquished).

In Brief Deferred realty exchanges under IRC section 1031 can provide significant tax benefits for taxpayers.

Deferred exchanges essentially allow a tax-free rollover reinvestment of the equity in a relinquished property.

Qualifying property is broadly defined, for both the property being transferred and that received, as realty used for investment or business purposes.

Consequently, investment realty (held for either appreciation or rental) can be exchanged for real property used in a trade or business.

The author answers questions about section 1031, from the most basic, such as what real estate is eligible for like-kind treatment and what timelines apply, to the most complex, such as how to structure more sophististicated transactions and realty conversions. Under IRC section 1031, a taxpayer is allowed to postpone the recognition of gain on the disposition of qualifying realty by the acquisition of replacement real property that will be later identified and purchased within a specific period of time.