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SAFE HARBOR  

Safe Harbor

Certain investment opportunities afford you the right to take advantage of section 1031 and the "safe harbor" policies of the IRS tax code. These investments allow you to defer the capital gains tax on the sale of a commercial property by reinvesting the money made from the sale into another property. There are several requirements that must be fulfilled in order to carry out a successful exchange.

Properties that are reserved for 1031 transfers are referred to as like kind properties. Upon the closing of your first (relinquished) property, you have 45 days to locate your candidate (replacement) properties and identify them to the IRS. The exchange must take place within 180 days of the initial closing.

During part or all of the 180 days, the money from the close will be put in a trust. In the case of a reverse exchange, the title of either the relinquished or replacement property will be held by an exchange accommodation titleholder (EAT), but the taxpayer will maintain control of the title. There are two general types of exchanges that can take place. An "exchange first" transfer occurs when the EAT purchases the relinquished property, and an "exchange last" takes place when the EAT purchases the replacement property. Each type of exchange offers different benefits to investors, and should be considered on a case-by-case basis.

Safe harbor policies were developed to assist qualified intermediaries in the exchange process. They were put in place to help ensure that tax deferred exchanges would not be disqualified at any point during the process. To learn more about safe harbor and 1031 regulations, call our toll-free number, 1-877-4-TM1031, or email here info@tm1031exchange.com.

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