1. STRATEGIES FOR 1031 SUCCESS
Presented by:
Mary Kay Kennedy
Senior Vice President
National Operations Manager
Julie Baird
Vice President and Counsel
STRATEGIES FOR 1031 SUCCESS
First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.
The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.

2. What We Will Discuss Today
Top five things to know when planning an exchange
What to put in the contract and when to set up the exchange
Using exchange funds to pay expenses and make deposits
Financing and partnership issues
Reverse and build-to-suit exchanges
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3. Top Five Things to Know Exchange of like-kind properties
Leasehold interests
Options
REIT Shares
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4. Top Five Things to Know Held for investment vs. held for sale
Napkin test
Equal or greater in value and equity
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5. Top Five Things to Know Timing and identification rules 45 days
3 property rule/200% rule
180 days to close
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6. Top Five Things to Know Same taxpayer rule Lender requirements
Single member LLCs as disregarded entities
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7. Planning Your Exchange
What to put in the purchase and sale contract
Restrictions on receiving cash
Taking boot out of the closing
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8. Exchange Funds, Expenses and Deposits
Holdbacks
Example: $10 million property, $1 million holdback
Standpoint of seller as taxpayer; buyer as taxpayer
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9. Exchange Funds, Expenses and Deposits
Holdback – Seller as taxpayer
Are funds released to the QI before or after COE of replacement property?
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10. Exchange Funds, Expenses and Deposits
Holdback – Buyer as taxpayer
Are funds released to the seller within 180-day exchange period or after the exchange period?
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11. Expenses
Predevelopment, due diligence costs; prorated rents, security deposits
Exchange expenses vs. non-exchange expenses
Transactional expenses typically paid at closing
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12. Exchange Expenses vs. Non-Exchange Expenses
Paying them doesn’t cause boot
Broker’s commissions – Revenue Ruling
Non-exchange expenses
Credit for prorated rent and security deposits
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13. Transactional Costs
Transactional items that relate to sale or purchase
Typically appear on the closing statement in area
Violating this may ruin exchange
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14. Receiving Deposits Non-refundable deposit and setting up exchange
Sending deposits before the relinquished property has closed
Documentation required – assignment of rights to QI
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15. Sending Deposits Documentation required – assignment of rights to QI
Have QI sign amendments once assigned in
Cancellation – return to QI
Personal funds for deposit
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16. Refinancing Before or After an Exchange
Why is this an issue?
Timing
Independent business purpose
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17. Seller Carryback Financing
Example: $10 million property; $8 million cash, $2 million note
Separate from exchange
Included in exchange
Note payable to QI
Convert to cash or use note in purchase
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18. Partnership Issues Partners want to go their separate ways
Same taxpayer rule
Partnership interests excluded
Drop and swap
Swap and drop
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19. Partnership Issues
Challenges: Who owns the relinquished property, holding period
Magneson v. Commissioner of Internal Revenue, 753 F. 2d 1490 (9th Cir. 1985), Bolker v. Commissioner of Internal Revenue, 760 F. 2d (9th Cir. 1985) and Maloney v. Commissioner of Internal Revenue, 93 T.C. 89 (1989)
CA FTB Case - In re Rago Development Corp., SBE-001, June 23, 2015
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20. Reverse Exchange What is a reverse exchange? Rev. Proc. 2000-37
180-day period
Flow of funds
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21. Reverse Exchange Benefits Challenges What if it fails?
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22. Improvement Exchange What is an improvement exchange
Rev. Proc
180-day period from first closing
Flow of funds
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23. Improvement Exchange Benefits Challenges
What if construction is not completed?
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24. Vice President and Counsel National Operations Manager
Questions?
Julie Baird
Vice President and Counsel
(650)
Mary Kay Kennedy
Senior Vice President
National Operations Manager
(408)
First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.
The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.