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1031 Like-Kind Exchange Basics for Equipment Owners

Found within Internal Revenue Code Section 1031, like-kind exchanges are referred to by various names, including:
  • Section 1031 exchanges
  • Starker exchanges
  • Tax-deferred or tax-free exchanges
  • LKEs

Regardless of what like-kind exchanges are called, for equipment owners the basic premise is the same.

Reduce Tax Exposure on the Sale of Heavy Equipment

I recently attended a large heavy equipment auction at which thousands of pieces of heavy equipment sold during a one-week period. While observing the auction, it became abundantly clear to me that those who were buying equipment were highly calculated in their decision-making, having done extensive research into the equipment on which they were bidding so that they could make split-second decisions during the auction.

Reporting Like-Kind Exchanges to the IRS via Form 8824

With the first quarter of 2016 nearly over, owners of heavy equipment are busy finalizing their 2015 financial statements. Once those financial statements are complete, accountants will be busy preparing the related tax returns. For those owners who have completed a 1031 like-kind exchange, a Form 8824 will need to be prepared and filed with the Internal Revenue Service (IRS).

IRC Section 1031 Exchange Qualified Use Requirements

We recently examined the duration a taxpayer must hold a relinquished and replacement property to satisfy the requirement that exchanged assets must be held for investment or used in a business or trade. The conclusion was that there is no specific time limit for an asset to be deemed to having been held, rather it is a facts and circumstances test. In this post, we will look into the issue of “qualified use” as another key element in a successful tax deferred exchange.

What are Valid 1031 Exchange Selling Expenses?

When selling or purchasing an investment property in a 1031 exchange, certain selling expenses paid out of the sales or 1031 exchange proceeds will result in a taxable event for the exchanger. Routine selling expenses such as broker commissions or title closing fees will not create a tax liability. Operating expenses paid at closing from 1031 proceeds will create a tax liability for the exchanger.

Mobile Storage Industry Discovers Cash Benefits of 1031 Like-Kind Exchanges

Mobile storage and mobile temporary housing companies are discovering the cash benefits associated with 1031 like-kind exchange programs that the heavy equipment, trucking, car rental, and leasing companies have been using for years. The advantages that can be garnered by redirecting cash into new structure purchases, as opposed to sending the money to the IRS, make 1031 exchanges an attractive option.

1031 Exchange Holding Period Requirements

How long does a property need to be held to satisfy the 1031 "held for" requirement?

Most of the rules and regulations pertaining to IRC Code Section 1031 are found in the detailed Treasury Regulations supporting the Code. However the requirement that exchange assets be held for use in a business or for investment have been part of Section 1031 itself since the inception of this provision in the 1920s.

How do the bonus depreciation changes in the PATH Act affect my business?

Finally, some tax certainty from Washington regarding bonus depreciation! Though a tax overhaul seems relatively imminent, the five-year bonus extension sure beats the annual nail-biting surrounding last minute actions by Congress. More realistic and accurate strategic planning and tax risk assessment can now begin.

Understanding Bonus Depreciation, Section 179 Expensing, and the PATH Act

At the end of 2014, we reviewed the White House announcement regarding the Tax Increase Prevention Act of 2014 (TIPA). Signed into law on December 19, 2014, the act allowed purchasers of certain qualifying equipment to immediately expense a portion of the asset’s cost through special bonus depreciation and/or Section 179 expensing. At the time, many equipment owners applauded TIPA, but remained critical of Congress as Section 179 and bonus depreciation were set to expire just twelve days later, on December 31, 2014.

Qualified Intermediaries - More Than Meets the Eye!

In 2007, Michael Bay directed the film Transformers, which some might argue was his greatest film to-date. Transformers follows a young man who gets tossed into an alien war between the Autobots and the Decepticons, both of whom are on Earth disguised as different motor vehicles but can transform into huge warring robots in a moment. It was way back in 1984 when Hasbro launched the Transformer line of toys that inspired the recent films. Toys that had kids around the world singing the refrain, Transformers! More than meets the eye!
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