1. www.Mckissock.com www.McKissock.com 1-800-328-2008 www.McKissock.com www.Mckissock.com

2. www.McKissock.com 1-800-328-2008 §1031 Exchange Terminology  Boot  Cash Boot  Constructive Receipt  Direct Deeding  Exchanger  Exchange Agreement  Exchange Period

3. www.Mckissock.com www.McKissock.com 1-800-328-2008  Identification Period  Like-Kind Property  Mortgage Boot  Qualified Intermediary  Relinquished Property  Replacement Property §1031 Exchange Terminology

4. www.Mckissock.com www.McKissock.com 1-800-328-2008 Poll question 01. Constitution State Statue Internal Revenue Code Real estate commission rules Sec. 1031 is part of the? A B C D

5. www.Mckissock.com www.McKissock.com 1-800-328-2008 Internal Revenue Code §1031 “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.” Non-Recognition of Gain or Loss from Exchange Solely of Kind

6. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031: Exceptions  Stock in trade or other property held primarily for sale  Stocks, bonds, or notes  Other securities or evidences of indebtedness or interest  Interests in a partnership  Certificates of trust or beneficial interest  Choses in action

7. www.Mckissock.com www.McKissock.com 1-800-328-2008 1921 Revenue Act of 1921 1989 Revenue Reconciliation Act of 1989 1979 Starker Tax Court Cases 1984 Deficit Reduction Act of 1984 1986 Tax Reform Act of 1986 History of IRC §1031 / Capital Gain Tax

8. www.Mckissock.com www.McKissock.com 1-800-328-2008 2003 May 6, 2003 Jobs & Growth Reconciliation Act History of IRC §1031 / Capital Gain Tax 1997 1979 Tax Relief Act 1991 Final Treasury Regulations 2000 September 15, 2000 Rev. Proc. 2000-37

9. www.Mckissock.com www.McKissock.com 1-800-328-2008 Poll question 02. 1969 1984 2001 1921 Congress first allowed the exchange of properties in: A B C D

10. www.Mckissock.com www.McKissock.com 1-800-328-2008 Relevant Issues  Investors can potentially defer 100% of their capital gain taxes, both state and federal  Liability  Increase your income  Competition  Client Benefits Tax Deferral 15% Federal + 0- 13% State 15 – 28% Tax Deferral Plus 25% Depreciation Recapture

11. www.Mckissock.com www.McKissock.com 1-800-328-2008 Investor Motives Investors increase their rate of return by using:  Leverage  Diversification  Consolidation  Cash Flow  Management Relief  Increase Depreciation  Estate Planning

12. www.Mckissock.com www.McKissock.com 1-800-328-2008 Definition of Like-Kind Property Real Property for Real Property

13. www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback question 03. Apartment building Vacation rental properties Retail center Primary Residence What would not be considered like-kind property to an office building? A B C D

14. www.Mckissock.com www.McKissock.com 1-800-328-2008 ABC D Feedback question 03. Apartment building Vacation rental properties Retail center Primary Residence What would not be considered like-kind property to an office building?

15. www.Mckissock.com www.McKissock.com 1-800-328-2008 Time is only one factor The Taxpayer’s “intent” is the key issue Like-Kind Issues: Holding Period

16. www.Mckissock.com www.McKissock.com 1-800-328-2008 24 months or more  In PLR 8429039, the IRS stated that a minimum holding period of two years would be sufficient. Time is only one factor The Taxpayer’s “intent” is the key issue Like-Kind Issues: Holding Period

17. www.Mckissock.com www.McKissock.com 1-800-328-2008 24 months or more  In PLR 8429039, the IRS stated that a minimum holding period of two years would be sufficient. Minimum of 12 months  Straddles two tax filing years.  Over 12 months qualifies for long-term capital gain treatment.  Attempt by Congress in 1989 to impose one year holding period (which didn’t pass). Time is only one factor The Taxpayer’s “intent” is the key issue Like-Kind Issues: Holding Period

18. www.Mckissock.com www.McKissock.com 1-800-328-2008 Like-Kind Property Issues  Interests in a partnership  Property within the United States  FRPTA and SRPTA  Personal Property  Fee for Leasehold (30+ years)  Vacation/Second Homes  Property Held for Resale  Related Party Exchanges

19. www.Mckissock.com www.McKissock.com 1-800-328-2008 Revenue Procedure 2008-16 Creates safe harbor for vacation home exchanges. IRS will consider a dwelling unit held for investment if certain requirements are met. Like-Kind Property Issues- Vacation Homes

20. www.Mckissock.com www.McKissock.com 1-800-328-2008 Like-Kind Property Issues- Vacation Homes Barry E. Moore v. Comm., T.C. Memo. 2007-134:  The taxpayers never rented or attempted to rent the property.  The taxpayers deducted mortgage interest as a “home mortgage interest” expense rather than investment interest expense.  The taxpayers did not take (and possibly did not qualify for) depreciation or other tax benefits associated with investment property, including deductions or maintenance expenses. Planning Strategies:  Substantiate investment intent.  Report rental income, attempts to rent property or conversion from a second home to a rental property held for investment.  Treat property as held for investment on the tax return.

21. www.Mckissock.com www.McKissock.com 1-800-328-2008 Exchanges of vacation homes held for investment are possible, provided the primary reason is holding for investment and not for personal use. 1 2 3 4 5 6 7 8 9 10 Conservative (“Safer”) Aggressive (“Riskier”) Revenue Procedure 2008-16 Moore vs. Comm. 2007-134 Range of possible vacation home exchanges. Safe Harbor Non-Safe Harbor Like-Kind Property Issues- Vacation Homes

22. www.Mckissock.com www.McKissock.com 1-800-328-2008 Related Party Rules Who is a Related Party?

23. www.Mckissock.com www.McKissock.com 1-800-328-2008 Related Party Rules Four Different Scenarios: 1.Simultaneous Exchange 2. Delayed – Selling to a Related Party 3. Delayed – Purchasing from a Related Party (See Rev. Ruling 2002-83, PLR 9748006) 4. Delayed – Purchasing from a Related Party who is Exchanging (See PLR 2004-40002)

24. www.Mckissock.com www.McKissock.com 1-800-328-2008 Internal Revenue Code §121  Married Taxpayers, filing a joint return, can exclude up to $500,000  Single filers can exclude up to $250,000  Home must be primary residence of both spouses for 2 of the last 5 years  §121 exclusion available once every two years  Vacation/second homes do not qualify

25. www.Mckissock.com www.McKissock.com 1-800-328-2008 Jobs & Growth - Reconciliation Act-2003 Federal Capital Gain Tax Changes  Rate reduced to 15% (from 20%) for Taxpayers in the top tax bracket  Rate reduced to 5% for Taxpayers in the 10% and 15% tax brackets  Retroactive to May 6, 2003

26. www.Mckissock.com www.McKissock.com 1-800-328-2008 Treasury Decisions 9152 Taxpayers may exclude gain from principal residence even though they have owned it for less than two years. Maximum exclusion applies only if the sale is by reason of:  Change in place of employment (50 miles)  Health of certain qualified individuals  Unforeseen circumstances (death, divorce, multiple births from same pregnancy, unemployment or change in employment, etc.)

27. www.Mckissock.com www.McKissock.com 1-800-328-2008 American Jobs Creation Act-2004 “Recognition of gain from the sale of a principle residence acquired in a like-kind exchange within 5 years of sale. (10) PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE -- If a taxpayer acquired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or exchange of such property if it occurs during the 5-year period beginning with the date of the acquisition of such property.”

28. www.Mckissock.com www.McKissock.com 1-800-328-2008 Revenue Procedure 2005-14  Take advantage of §121 (tax exclusion on a primary residence) and §1031 (tax deferred exchange treatment) when a property was a primary residence for 2 of the last 5 years, but most recently held for investment purposes.  Allows both capital gain tax exclusion – and deferral – which benefits homeowners with gain over the $500,000 and $250,000 limits.

29. www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback question 04. Purchase greater square footage Payoff all debt Reinvest all net exchange proceeds Use a real estate broker In order for an exchange to qualify for 100% tax deferral, the taxpayer must? A B C D

30. www.Mckissock.com www.McKissock.com 1-800-328-2008 C DAB Feedback question 04. Purchase greater square footage Payoff all debt Reinvest all net exchange proceeds Use a real estate broker In order for an exchange to qualify for 100% tax deferral, the taxpayer must?

31. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Exchange Equation For full tax deferral, an Taxpayer must meet two requirements: 1.Reinvest all net exchange proceeds 2.Acquire property with the same or greater debt. The Taxpayer acquired property of greater value, reinvesting all net equity and increasing the debt on the replacement property. Analysis: There is no boot.

32. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Exchange Equation The Taxpayer acquired property of a lower value, keeps $100,000 of the net equity and acquired a replacement property with $40,000 less debt. Analysis: This results in a total of $140,000 in boot. ($40,000 mortgage boot and $100,000 in cash boot = $140,000)

33. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Exchange Equation The Taxpayer acquired property of a lower value, reinvesting all net equity, but has less debt on the replacement property. Analysis: This results in $40,000 in mortgage boot.

34. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange - Formats & Variations §1031 Exchange

35. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange - Formats & Variations §1031 Exchange The Two-Party Trade (Swap)

36. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange - Formats & Variations §1031 Exchange The Two-Party Trade (Swap) The Three-Party Exchange (Alderson Format)

37. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange - Formats & Variations §1031 Exchange The Two-Party Trade (Swap) The Three-Party Exchange (Alderson Format) The Delayed Exchange with a QI

38. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange - Formats & Variations §1031 Exchange The Two-Party Trade (Swap) The Three-Party Exchange (Alderson Format) The Delayed Exchange with a QI Multiple Sales and Acquisitions

39. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange - Formats & Variations §1031 Exchange The Two-Party Trade (Swap) The Three-Party Exchange (Alderson Format) The Delayed Exchange with a QI Multiple Sales and Acquisitions Parking Arrangements (Reverse and Improvement)

40. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Two-Party Trade (Swap) SINGLE FAMILY HOME Trade of Deeds Party A Party B

41. www.Mckissock.com www.McKissock.com 1-800-328-2008 Poll question 05. Agreement Like-kind property Qualified intermediary Deeded interest A two party trade or sway could be done without a(n) A B C D

42. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Three-Party Exchange - Alderson BUYER SELLER ALDERSON

43. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Three-Party Exchange - Alderson BUYER SELLER ALDERSON Rel. Prop. Deed

44. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Three-Party Exchange - Alderson BUYER SELLER ALDERSON Rel. Prop. Deed Rep. Prop. Deed

45. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Three-Party Exchange - Alderson BUYER SELLER ALDERSON Rel. Prop. Deed Rep. Prop. Deed

46. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Three-Party Exchange - Alderson BUYER SELLER ALDERSON Rel. Prop. Deed Rep. Prop. Deed $

47. www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback question 06. The delayed exchange Two-party swap Alderson format Reverse exchange Which of the following exchange formats is most widely used today? A B C D

48. www.Mckissock.com www.McKissock.com 1-800-328-2008 A CDB Feedback question 06. The delayed exchange Two-party swap Alderson format Reverse exchange Which of the following exchange formats is most widely used today?

49. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER SALE The Delayed Exchange with a QI

50. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY $ SALE The Delayed Exchange with a QI

51. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY $ SELLER $ SALE PURCHASE The Delayed Exchange with a QI

52. www.Mckissock.com www.McKissock.com 1-800-328-2008 Delayed Exchange - Time Requirements 0 45 Identification Period Total Exchange Period The Taxpayer must identify potential replacement property(s) by midnight of the 45th day from the date of sale. 180

53. www.Mckissock.com www.McKissock.com 1-800-328-2008 Delayed Exchange - Time Requirements 0 45 Identification Period Total Exchange Period The Taxpayer must identify potential replacement property(s) by midnight of the 45th day from the date of sale. 180 The Taxpayer must acquire the replacement property by midnight of the 180th day, or the date the taxpayer must file its tax return (including extensions) for the year of the transfer of the relinquished property, whichever is earlier.

54. www.Mckissock.com www.McKissock.com 1-800-328-2008 Poll question 07. 45th 60th 135th 180th The identification period ends on midnight of the ___ calendar day after closing on the relinquished property. A B C D

55. www.Mckissock.com www.McKissock.com 1-800-328-2008 Delayed Exchange - Identification Rules Three Property Rule: The Taxpayer may identify up to three properties of any fair market value. 200% Rule: The Taxpayer may identify an unlimited number of properties provided the total fair market value of all properties identified does not exceed 200% of the fair market value of the relinquished property. 95% Rule: If the Taxpayer identifies properties in excess of both of the above rules, then the Taxpayer must acquire 95% of the value of all properties identified.

56. www.Mckissock.com www.McKissock.com 1-800-328-2008 Delayed Exchange - Identification Rules Identification must be:  Made in writing  Unambiguously describe the property (street address or legal description)  Signed and dated by the Taxpayer  Sent by midnight of the 45 th day  Delivered to the Qualified Intermediary or a party related to the exchange who is not a disqualified person

57. www.Mckissock.com www.McKissock.com 1-800-328-2008 Highlights of a Valid Delayed Exchange Consult with an experience Qualified Intermediary (QI), and tax/legal advisors prior to closing on the sale of the relinquished property. Ensure that the sale contract is assignable and that the buyer is made aware of such assignment in writing. The following language is to establish three things:  Intent to effect a §1031 tax deferred exchange;  Release the Buyer from any liabilities or costs resulting in the exchange;  Notify the Buyer in writing of assignment.

58. www.Mckissock.com www.McKissock.com 1-800-328-2008 Highlights of a Valid Delayed Exchange Sale of the Relinquished Property: “Buyer is aware that Seller is to perform an IRC §1031 tax deferred exchange. Seller requests Buyer’s cooperation in such an exchange, and agrees to hold Buyer harmless from any and all claims, liabilities, costs, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract by the Seller”  The Qualified Intermediary’s Exchange Agreement must be executed prior to closing the sale. QI oversees the closing.  The Taxpayer must identify the property(s) to be acquired in accordance with the Rules of Identification.  The Taxpayer must close on the new property by the 180th calendar day (or their tax filing date – whichever is earlier) from the close of the relinquished property sale.

59. www.Mckissock.com www.McKissock.com 1-800-328-2008 §1031 Exchange Documentation Qualified Intermediary:  Exchange Agreement  Assignment Agreement  Notice of Assignment  Account Set-Up Forms  Security of Funds Instrument  Instruction to closing officer Closing Entity:  Settlement Forms  FRPTA (state withholding, where applicable)  1099 Form  Other documents common to the area §1031 Exchange Documentation

60. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER 3 TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY $ SELLER $ SALE PURCHASE The Multiple Property Exchange BUYER 2 BUYER 1

61. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY $ $ SALE PURCHASE The Multiple Property Exchange SELLER 2 SELLER 3 SELLER 1 $ $

62. www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback question 08. Delayed exchange Qualified intermediary Conservation easement Parking arrangement In both a reverse exchange and improvement exchange what is the name of the format used to make sure they taxpayer does not own both properties at the same time? A B C D

63. www.Mckissock.com www.McKissock.com 1-800-328-2008 D CAB Feedback question 08. Delayed exchange Qualified intermediary Conservation easement Parking arrangement In both a reverse exchange and improvement exchange what is the name of the format used to make sure they taxpayer does not own both properties at the same time?

64. www.Mckissock.com www.McKissock.com 1-800-328-2008 Parking Arrangements What is a Reverse Exchange?

65. www.Mckissock.com www.McKissock.com 1-800-328-2008 Parking Arrangements What is a Reverse Exchange? Purchasing the replacement property before the sale of the relinquished property.

66. www.Mckissock.com www.McKissock.com 1-800-328-2008 Parking Arrangements What is an Improvement Exchange?

67. www.Mckissock.com www.McKissock.com 1-800-328-2008 Parking Arrangements What is an Improvement Exchange? Building a new replacement property from the ground-up or making improvements to an existing replacement property.

68. www.Mckissock.com www.McKissock.com 1-800-328-2008 Revenue Procedure 2000-37 Effective September 15, 2000  Provides a “safe harbor” for reverse exchange transactions that stay within the parameters of the Revenue Procedure.  Reverse exchanges may be structured outside the safe harbor.

69. www.Mckissock.com www.McKissock.com 1-800-328-2008 Revenue Procedure 2000-37 Key Terms QEAA = Qualified Exchange Accommodation Arrangement EAT = Exchange Accommodation Titleholder (EAT cannot be a disqualified person and must be subject to federal income tax.)

70. www.Mckissock.com www.McKissock.com 1-800-328-2008 QEAA Summary EAT must acquire legal title to the property or other indicia of ownership to be treated as beneficial ownership of the property under applicable principles of commercial law (e.g., a contract for deed). Intent – It is the Taxpayer’s bona fide intent that the property held by the exchange accommodation title holder represent either replacement property or relinquished property in an exchange.

71. www.Mckissock.com www.McKissock.com 1-800-328-2008 QEAA Summary  Qualified Exchange Accommodation Agreement  No later that five business days after the EAT’s acquisition of the replacement property, the Taxpayer and the EAT enter into QEAA.  Identification of relinquished property within 45 calendar days in the manner consistent with the requirements of §1-1031(k)-1(c).  180 calendar days maximum parking term by EAT.

72. www.Mckissock.com www.McKissock.com 1-800-328-2008 Permissible Agreements  EAT may act as both QI and EAT.  Taxpayer may guarantee debt or obligations and can indemnify the EAT from construction expenses.  Taxpayer may loan or advance funds for acquisition.  EAT can lease or enter into management agreements with Taxpayer.  Taxpayer can act as supervisor and/or contractor to provide means for improvements on parked property.  EAT and Taxpayer may enter agreements, puts and calls and fixed or formula prices.

73. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45 180 Identification Period Total Exchange Period TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY SELLER Reverse Exchange Format EAT Acquisition Replacement Property Parked (Step 1)

74. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45 180 Identification Period Total Exchange Period TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY SELLER Reverse Exchange Format $ $ EAT Acquisition Replacement Property Parked (Step 1)

75. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45 180 Identification Period Total Exchange Period TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY SELLER Reverse Exchange Format $ $ $ $ EAT Acquisition Replacement Property Parked (Step 1)

76. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45 180 Identification Period Total Exchange Period TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY SELLER Reverse Exchange Format $ $ $ $ Rep. Prop. Deed EAT Acquisition Replacement Property Parked (Step 1)

77. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45 180 Identification Period Total Exchange Period TAXPAYER QUALIFIED INTERMEDIARY QUALIFIED INTERMEDIARY SELLER Reverse Exchange Format $ $ Lease $ $ Rep. Prop. Deed EAT Acquisition Replacement Property Parked (Step 1)

78. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Replacement Property Parked (Step 2)

79. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Replacement Property Parked (Step 2)

80. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT $ Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Replacement Property Parked (Step 2)

81. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT $ Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period $ $ Replacement Property Parked (Step 2)

82. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT $ Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Rep. Prop. Deed Replacement Property Parked (Step 2) $ $

83. www.Mckissock.com www.McKissock.com 1-800-328-2008 Reverse Exchange Format Positives  Exchange Equity Need Not Be Present  Allows For Multiple Relinquished Properties

84. www.Mckissock.com www.McKissock.com 1-800-328-2008 Reverse Exchange Format Positives Negatives  Exchange Equity Need Not Be Present  Allows For Multiple Relinquished Properties  Lender May Have Issues Lending To EAT

85. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Relinquished Property Parked (Step 1)

86. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Rel. Prop. Deed Relinquished Property Parked (Step 1)

87. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Rel. Prop. Deed Lease Relinquished Property Parked (Step 1)

88. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT SELLER 0 45 180 Identification Period Total Exchange Period Relinquished Property Parked (Step 1) Reverse Exchange Format

89. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT SELLER 0 45 180 Identification Period Total Exchange Period Relinquished Property Parked (Step 1) $ $ Reverse Exchange Format

90. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT SELLER 0 45 180 Identification Period Total Exchange Period Relinquished Property Parked (Step 1) $ $ $ $ Reverse Exchange Format

91. www.Mckissock.com www.McKissock.com 1-800-328-2008 TAXPAYER EAT SELLER 0 45 180 Identification Period Total Exchange Period Relinquished Property Parked (Step 1) $ $ $ $ Reverse Exchange Format

92. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Relinquished Property Parked (Step 2)

93. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Rel. Prop. Deed Relinquished Property Parked (Step 2)

94. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT $ Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period Rel. Prop. Deed Relinquished Property Parked (Step 2)

95. www.Mckissock.com www.McKissock.com 1-800-328-2008 BUYER TAXPAYER EAT $ Reverse Exchange Format 0 45 180 Identification Period Total Exchange Period $ $ Rel. Prop. Deed Relinquished Property Parked (Step 2)

96. www.Mckissock.com www.McKissock.com 1-800-328-2008 Reverse Exchange Format Positives  Loan and purchase easier (direct loan to Taxpayer) Relinquished Property Parked

97. www.Mckissock.com www.McKissock.com 1-800-328-2008 Reverse Exchange Format Positives Negatives  Loan and purchase easier (direct loan to Taxpayer)  Equity and debt should match to avoid boot  Lender issues (Due on sale & prepayment penalties) Relinquished Property Parked

98. www.Mckissock.com www.McKissock.com 1-800-328-2008 Poll question 09. Undefined Maximum of 180 days Maximum of 360 days Maximum of 45 days How long after purchasing a replacement property would a taxpayer have to sell their relinquished property under a safe harbor reverse exchange? A B C D

99. www.Mckissock.com www.McKissock.com 1-800-328-2008 The Improvement Exchange Why Perform an Improvement Exchange?  The property to be acquired in the exchange is not of equal or greater value to property being sold.  Build a new investment from ground-up.  The new investment is of equal or greater value but it needs refurbishments.

100. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER EAT SELLER The Improvement Exchange Step 1

101. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER EAT SELLER The Improvement Exchange Step 1

102. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER EAT $ SELLER The Improvement Exchange Step 1

103. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER EAT $ SELLER $ The Improvement Exchange Step 1

104. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER EAT $ SELLER $ The Improvement Exchange Rep. Prop Deed Step 1

105. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period BUYER TAXPAYER EAT $ SELLER $ The Improvement Exchange Construction Agreement Rep. Prop Deed Step 1

106. www.Mckissock.com www.McKissock.com 1-800-328-2008 0 45180 Identification Period Total Exchange Period TAXPAYER EAT The Improvement Exchange Step 2

107. www.Mckissock.com www.McKissock.com 1-800-328-2008 Important Issues in Improvement Exchange Identification of Replacement Property to be Produced “…if a legal description is provided for the underlying land and as much detail is provided regarding construction of the improvements as is practicable at the time identification is made.”

108. www.Mckissock.com www.McKissock.com 1-800-328-2008 Important Issues in Improvement Exchange Receipt of Replacement Property to be Produced “…if not within the provisions of Section 1031(a) if the relinquished property is transferred in exchange for services (including production services). Thus, any additional production occurring with respect to the replacement property after the property is received by the taxpayer will not be treated as the receipt of property of like-kind.”

109. www.Mckissock.com www.McKissock.com 1-800-328-2008 Why Exchange? Sale vs. an Exchange

110. www.Mckissock.com www.McKissock.com 1-800-328-2008 Why Exchange? Sale vs. an Exchange Note: 25% x $150,00 = $ 37,500 * 15% x $570,000 = $85,500 * 9.3% x 720,000 = $66,960

111. www.Mckissock.com www.McKissock.com 1-800-328-2008 Choosing a “Qualified Intermediary”

112. www.Mckissock.com www.McKissock.com 1-800-328-2008 Choosing a “Qualified Intermediary”

113. www.Mckissock.com www.McKissock.com 1-800-328-2008 Feedback question 10. Less than a delayed exchange Typically more than a delayed exchange About the same as delayed exchanges About the same as a simultaneous exchange The Qualified Intermediaries fees on reverse and improvement exchanges are? A B C D

114. www.Mckissock.com www.McKissock.com 1-800-328-2008 B D C A Feedback question 10. Less than a delayed exchange Typically more than a delayed exchange About the same as delayed exchanges About the same as a simultaneous exchange The Qualified Intermediaries fees on reverse and improvement exchanges are?

115. www.Mckissock.com www.McKissock.com 1-800-328-2008 QUESTIONS? Content provided by Asset Preservation 800-282-1031800-282-1031 Apiexchange.com or info@apiexchange.cominfo@apiexchange.com

116. www.Mckissock.com www.McKissock.com 1-800-328-2008 Thank you for being a McKissock customer! Please fill out the evaluation form. We value your input! We hope you enjoyed the course, and if you have any questions, please don’t hesitate to call us at 1-800-328-2008