Property Held for Resale
Purposes
Immediate Resale after Exchange
The George M. Bernard case, points
out the danger of immediately reselling property acquired in an
exchange. In Bernard, Owner held property which he desired to sell at
first but later exchanged for Parcel A, with the condition that the
exchange would not take place unless parcel A was sold to a third
party. Owner reported the transaction as a section 1031 exchange and a
subsequent sale qualifying for installment sale treatment. The Tax
Court held that Parcel A had been held primarily for sale and,
therefore, did not qualify for Section 1031 treatment. (For other
resale examples, see Regals Realty Co. v. Commissioner, supra; Griffin
v. Commissioner 49 T.C. 253 (1967), and Land Dynamics, supra.) ,
Observation:
If there is a defective exchange matched with a subsequent sale
in the same taxable year, the author questions what "tax damage," if
any, has
been done. Perhaps if the sale followed the "exchange" by less than
twelve
( or six for the period 6/22/84 to 1/1/88} months, long term capital
gains
treatment (prior to the TRA '86) might be jeopardized or in a "worst
case"
example, the defective exchange might destroy an installment sale
(§453).
The nature of the holding of the property is judged from the point of
view of the party to the transaction who is claiming the benefits of
§1031. Thus, the fact that the taxpayer exchanges qualified property
for property held by a dealer will not prevent the use of §1031,
provided the taxpayer holds the new property for business or
investment use. The existence of a dealer in a two-way or multiple
exchange, therefore, will not jeopardize §1031 treatment for the other
party, assuming all other requirements are met. (R.R. 77-297.)
For more information on this matter or if we
may be of further assistance please contact us for a free consultation
by calling us at 1 (800) 781-1031
or (714) 939-1031 or
by e-mail at
info@cornerstoneexchange.com
.
Security investments offered
through Sandlapper Securities, LLC. (Member FINRA, SIPC)
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