Real estate tax expert Mark Lee Levine, CCIM, JD, LLM (Tax), has published the Handbook on Exchanging Real Estate, a one volume work on tax-deferred exchanges in real estate. Most CCIMs are familiar with the value of using tax-deferred exchanges. On a personal basis or for clients, such tools for tax deferrals have enabled many commercial real estate brokers to work with clients to sell property that would not otherwise have been transferred, if the taxes were not avoided on the exchange. Thus, more commissions have been generated for CCIM designees because the deferral of taxes was possible when the Exchange technique was employed.
The focus in the Handbook is on the key issues that arise with exchanges. While Levine has various lengthier books that address the details on exchange issues, the Handbook is intended to give quick, practical answers that accurately address investors' concerns about following the Exchange rules for Internal Revenue Code Section 1031.
This new Handbook contains areas of coverage on issues such as: Why does the exchange tool (IRC 1031) exist? Of course, given the history of this rule, starting back in 1921 when the U.S. Congress passed the first iteration of the law, commercial real estate professionals have seen how the ability to postpone the payment of taxes on gains from the disposition of qualified real estate has been a wonderful, legal approach to allowing investors to move from one investment to another property, without diluting the investment dollars by currently paying taxes.
The book also addresses the practical issue of when to use IRC 1031 exchanges - and when to avoid them. According to Levine, “There are many situations where the exchange tool should not be employed.”
Classification of property is critical for exchanges as some property, such as dealer property, will not qualify for tax deferral under IRC 1031. To come within this exchange rule, Levine notes that the property involved in the exchange must be “qualified property” and “like kind property.”
The Handbook examines several cases where these definitional requirements were and were not met. The prudent CCIM needs to know these requirements to support the needs for their clients, as well as to assist CCIMs who are undertaking an exchange for their own accounts.
Additional issues addressed in the Handbook include these five crucial discussions for CCIMs to assist their clients.
- What are the requirements to meet the “tax deferred, deferred exchange” rules?
- Can entities holding real estate also undertake exchanges within 1031?
- What are the rules as to basis, holding periods, and other technical 1031 Rules when undertaking an exchange?
- Can you combine IRC 1031 with other tax rules, such as installment sales?
- Can you have an exchange within IRC Section 1031, followed by another transfer and still come within IRC Section 1031? Or will the subsequent transfer, which occurred shortly after the exchange, destroy the IRC Section 1031 position?”
At about 400 pages, the reader may quickly reference the sources and tables for listing revenue rulings, revenue procedures, cases, and other related exchange materials. Most importantly, this Handbook allows commercial real estate professionals and investors to be more successful - and more profitable - when disposing of property by employing the exchange tool under IRC 1031.
This Handbook is available in hard copy and electronic form on Amazon.com.
Mark Lee Levine discusses his new book about tax-deferred exchanges.
Author, professor, expert real estate tax attorney, commercial real
estate investor, commercial real estate professional, and expert witness
are among the many professions that Mark Lee Levine, CCIM, JD, LLM
(Tax), has juggled throughout his 45-year career. His expertise in
commercial real estate tax law - nationally and internationally - has
been an abiding force in the multiple books he has written. Levine
discusses how his latest book, Handbook on Exchanging Real Estate, is a
useful reference for commercial real estate professionals, how
tax-deferred exchanges help propel property sales, and why he writes so
many articles and books.
CIRE: Why is it a good time for writing and publishing the Handbook on Exchanging Real Estate?
Mark Levine: There are many reasons for commercial real estate
professionals to conduct exchanges, and those reasons change over time
and during specific transactions. The biggest reason for the use of 1031
is that an exchange can defer paying federal taxes.
Another reason for an exchange is the common disagreement about
property values. Sellers often think their properties are worth more
than buyers do. Both buyers and sellers, however, want to defer taxes,
this common desire to defer taxes may provide the common ground to
consummate the transactions.
CIRE: What if Congress eliminated the popular Internal Revenue Code 1031 exchange?
Levine: Nearly every year, legislators from both parties
discuss eliminating tax-deferred exchanges. I don't think it will happen
any time soon.
How many billions dollars are in there in exchanges annually? How
many would still take place if law was changed? I don't know the
answers, but I do know commercial real estate brokers would lose
transactions. The economy would lose some of the free flow of property,
because taxes will restrict this flow.
Overall, the elimination of 1031 would not be good for the U.S.
economy. There would be adverse implications for investors, title
companies, real estate attorneys, brokers, individuals, and companies.
If the U.S. Congress takes this tool away, it would be analogous to
taking a specialized scalpel from a surgeon. Operations will still be
performed, but they might be better performed with better instruments.
CIRE: What makes tax deferred properties so essential for CCIMs who invest and the clients they work with?
Levine: Since 1921, the IRC 1031 exchange law has proven to be
beneficial and versatile. These exchanges allow for the transfer of
property without creating an immediate tax liability; such an option
encourages the transfer of property. It's a useful tool for small
businesses, big businesses, investors, clients, brokers, and others.
CIRE: Why should CCIMs read this Handbook?
Levine: CCIMs will find it a useful tool because it offers a
review of fundamental exchange rules, when an exchange may be good
planning, and a discussion of other real world issues. The Handbook also
defines what qualifies as like-kind exchange properties.
For example, your primary residence doesn't qualify for a 1031
exchange. However, you could exchange an apartment building that you
live in with 100 units, without including the one unit you live in. The
Handbook provides guidance about how to structure the transaction to
come within 1031.
CIRE: What do you want CCIMs to take away from this Handbook that helps them in their day-to-day transactions?
Levine: CCIMs should treat this Handbook as a tool to use when
it fits. Like every other tool, CCIMs should use it in a setting that
makes sense. Sometimes the best answer is not to exchange under 1031.
CIRE: You are a prolific author. Why have you written so many books?
Levine: I don't set out to write a book. However, writing books helps me solidify, organize, and sort out my thoughts.
For example, my partner and I owned an office building, where our law
firm was located. Several years later, we figured out a way to sell the
building, which in turn helped an organization for autistic children.
From reading and writing cases, articles, and books, I have tried to
think more creatively. In this instance, we benefited financially and
helped a good group in our community.