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I want to exchange into a an improved real property that is…

I want to exchange into...
I want to exchange into a an improved real property that is subject to a GPLET Government property lease excise tax). The term of the GPLET is 8 years with fee reverting to the tenant. The reversion is automatic my operation of statute. Can this transaction qualify for section 1031 treatment? i.e. Is the real property subject to the GPLET qualify as real property for purposes of section 1031?
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Answered in 10 minutes by:
7/15/2016
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi,

...

Ownership must be like kind as well.

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Tell me a little more about the ownership attribute. Isn't the a requirement that the land and improvements be conveyed to a government entity and leased back for private use?

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If so, is the requirement simply that the conveyance is done at aarms length? (simply sold back to the government entity?)

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If is this an encumbrance or other "nature of the title" issue.

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The issue, again, being that ownership must be essentially identical for eplacement property and property given up in the exchange.

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The like-kind PROPERTY is likelyn not an issue

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See this from IRS: "Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land."

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What do you know about the nature of the title you will hold?

...

Let me now what you can, and we can go from there.

...

...

I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

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Customer reply replied 2 years ago
You have clearly identified the issue. Is it like kind. When the tax return is prepared there will be no mention of the GPLET etc. Or, for return purposes the taxpayer owns the property in every respect. Because of the GPLET there will be no property taxes due because the City has fee title. The property is operated, insured, depreciated etc. as if the taxpayer has fee title. However, when talking with someone who wishes to exchange into the property they desire assurance that the property qualifies a real property for purposes of section 1031. What a GPLET does is replace the property tax with an excise tax. Might there be a PLR on this? I could not locate one.
Customer reply replied 2 years ago
Maybe the thing to do is get a tax opinion letter or apply for a PLR? Your thoughts?

Makes sense. (to get an opinion letter... PLR is expensive).

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The risk lies in any IRS audit of the tax return for the year 1031 is done. What they'll want to look at is the title, the deed.

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And then, again, when the replacement property is eventually sold. (They'll want to reconcile back to the original 8824 and see that the title (owner) is still the same - whether selling OR doing another 1031.

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So, it seems to me that if the requirement to convey back to the govt entity is a separate agreement (rather than somehow an addendum or part of the title (the deed itself) - or other recorded encumbrance, you would be clear ... and simply fulfilling this (ideally separate) agreement to convey back ... but having ownership at both ends (buyer of replacement property and eventual seller or re-exchanger)

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I hope this has helped.

...

If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

Otherwise I’m working for no crediting at all here

...

Thank you!

Lane

I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

Ask Your Own Tax Question
Customer reply replied 2 years ago
Big assist. Allowed me to create some clarity at my end. Thanks!

You're very welcome ... Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …is thanks enough!

That's the only way I'll be credited for the work here

...

Thank YOU!

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,894
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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