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Hi, my name is Mark. I will be happy to help you with your questions. Please give me a moment to prepare your response.
1) Can a person doing an exchange elect to defer only a portion of the gain, or is it an all or nothing election? (not enough income to take advantage of itemized deductions / exemptions - but the entire gain pushes him into an overall 26% tax bracket (including state).
You cannot elect to defer only a portion of the gain but you can control the amount of the gain that is deferred. You would do this by taking cash out of the deal. Cash (Boot) would need to be recognized.
2) If one beneficiary wants to do the exchange, one wants to invest the funds but does not want to do the exchange, and one is not eligible for the exchange (has an interest in the property already) - can the Trust go ahead and do the exchange, treating each beneficiaries piece individually on the K-1? Or, MUST the property first be distributed outside the Trust and then exchanged (I realize this would be preferable - but one beneficiary is out of the country and can't sign docs - so leaving in trust allows trustee to sign).
Let me look into a sale outside of the trust. I believe it is a similar answer but let me verify.
The reason that I responded to answer 1 is that the Trust is the owner of the property. So the trust would be the one that is entering or not-entering a 1031 exchange. For part 2, I am looking to see what impact would happen if the beneficiaries held the property as tenants in common.
I am sure the answer is no but I thought that I would ask. Are there enough assets where the member that wants to do a 1031 exchange could receive the property and the other beneficiaries could receive their amounts from other assets?
Sorry I had to step away from the computer.
You can do a 1031 exchange outside of the trust with multiple owners of a property. One investor could do a 1031 exchange while the other investors take their share of the cash. The intent of the investors need to be known at the time of the sale and cannot be changed.
For Q1 the amount of gain would depend on how much cash is taken out of the transaction. The 1031 exchange needs to be done by the owner of the property. If the trust owns the property then the amount of the gain that is deferred is based on a number of factors (boot received, liabilities decrease etc.). Deferring a portion of the gain should be a relatively easy calculation. I am not sure what reference you are looking for this would be just IRC Section 1031.
I apologize. I had an emergency that came up. I will have time to look at this. If you need to repost in a legal section I understand.
IRC 662(b) discussed the character of the income distributed from a trust. The income should have the same character in the hands of the beneficiary as in the hands of the trust. For this purpose, the amounts shall be treated as consisting of the same proportion of each class of items entering into the computation of distributable net income as the total of each class bears to the total distributable net income of the trust unless the terms of the governing instrument specifically allocate different classes of income to different beneficiaries.
IRC 662(b) does not allow you to specially allocate income to the beneficiaries unless specifically referenced in the trust documentation.