Wednesday, March 12, 2008

1031 Exchange Makes the News in Myrtle Beach

The below article in the Sun News was taken from an articale originally done by myself as a press release about 1031 Exchanges on PRWeb. It was done as an adjunct to our 1031 Tax Exchange website called 1031Commercial.com. I noted most of the exact information in my press release as to owners wanting to use their investment condos and real estate for personal vacations and how the IRS was now specifically going to allow it.

Today, the article below appeared in the Sun News, and to add insult to injury, the auther actually telephoned David O'Connell, whose number and reference was in my original press release, and spent a good bit of his time answering her questions about 1031's and the IRS regulations, as well as the differences in using Myrtle Beach real estate to save capital gains taxes.

Not only was no credit given to the original article, which was taken from a similar but generic mention in Forbes Magazine, but the author of the Sun News article didn't give any mention to her conversations with David, his insight and knowledge about 1031's or even a link to his website.

I feel rather offended by this, and wanted it to be known.

Here is the Sun News Article that I feel was offensively done without giving just due to the both of us.

Posted on Wed, Mar. 12, 2008
Tax break available for some investors
JESSICA FOSTER

Real estate investors looking for ways to dodge taxes on capital gains have clearer guidelines as to whether they qualify for a popular tax break.

Many Myrtle Beach investors buy condos and houses in hopes of spending some vacation time in the property - a move that might have disqualified them from a tax-free 1031 exchange before this week.

Now, they still qualify if they vacation there for up to 14 days or no more than 10 percent of the number of days the unit is rented out, according to an Internal Revenue Service bulletin.

That could be a plus for the investor-heavy coast, said Tom Maeser, market analyst for the Coastal Carolinas Association of Realtors. The exchange, made possible through Section 1031 of the tax code, lets people swap their property for a new one without being taxed on the gains as long as the property is used for investment or business. The personal use rules mean real estate buyers don't have to wonder whether they're eligible for the exchange if they vacation in their investment property for a few days.

"You never knew whether you were going to be in trouble or not because they never spelled it out very clearly," Maeser said. "So many of our investors now are going from the old flippers to the baby boomers that are buying second homes now and will put them in a rental program. This just gives them a lot more assurance that they're not going to be challenged by the IRS."

The change comes after a recent U.S. Tax Court case, Moore v. Commissioner, in which taxpayers tried to do an exchange on two properties they used solely for personal purposes.
They said the properties should qualify as investments because the values were expected to appreciate.
The court ruled that the "mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence."

Other than being an investment property, there are additional requirements for the exchange: the investor has 45 days to identify potential replacement properties and the exchange must be done within 180 days. A qualified intermediary also has to be used.

Buyers should also keep in mind that the exchange only defers paying the taxes until the property is sold. "Unless you're lucky enough to die before you sell it, you're not saving the tax, you're deferring the tax," said Myrtle Beach attorney and CPA Tone Trask.

That could mean that investors pay more in taxes if the federal tax rate rises from its current 15 percent on capital gains.

Though some Realtors say 1031 exchanges are relatively common among local investors, Trask said he hasn't done many in recent years because of the market downturn.
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