Tax Deferred Exchange Process
Owners of investment property, be it commercial, industrial, residential or vacant land, are permitted to sell that property and defer capital gains taxes by exchanging the proceeds, through and intermediary, for an investment in another like-property or group of like-properties.
To affect an exchange, the seller places all sale proceeds into a special trust account designated for this purpose. These trust accounts are normally maintained by banks, trust companies or other financial institutions called Intermediaries.
Sellers have a maximum of 180 calendar days from the closing of the initial sale to complete the exchange. Within the first 45 days of this period a seller must designate properties and properly identify them to the IRS. A seller may target up to three properties regardless of value or a group of properties with a combined value that does not exceed 200 percent of the value of the initial property sale. The funds in the Intermediary’s account can be used as earnest money for designated property once all IRS requirements for a 1031 transaction are met.
If the seller does not identify the new properties in the first 45 days, or no designated transaction is completed during the 180 day period, the trust will be liquidated and the original sale proceeds will be taxed at the prevailing capital gains rate.
Triple-net-lease properties are usually single tenant commercial (such as Walgreen’s, CVS and Eckerds Drugstores, Wal-Mart, Circuit City, Winn-Dixie Food Stores, Home Depot, Blockbuster, and Federal Express) properties with long term leases backed by corporate credit. These leases typically obligate the tenant to provide for real estate taxes, insurance and building maintenance.
ComNet Realty, Inc. firmly believes that triple net lease properties, guaranteed by institutional grade credit, are ideal exchanges for individuals who want conservative investment property with steady, long-term income but without responsibility of day-to-day management.