I was in Palm Bay Florida earlier this week for the funeral of a cousin. That part of the state is called the "Space Coast", because the Kennedy Space Center is close by. I flew in and out of Melbourne International Airport. If activity at the airport is an indicator of the condition of the local economy, the Space Coast is not doing well. When my flight arrived that morning, I hustled through the airport to the rental car area and was on my way to the funeral service in just a few minutes. I did not pay any attention to the level of activity at the airport.
That afternoon, I arrived back at the airport at about 4:45pm for a 5:45pm flight back to Atlanta and there was no one there. All of the ticket booths and rental car stands had personnel, there were just not many passengers. My flight was a little late leaving. In the hour or so I spent in the terminal, the only airplane to land and take off was our little 50 passenger regional jet. The concourses were empty and there were no aircraft at any of the gates. I have had this experience at some tiny airports throughout the country. I have never had that experience at a medium sized airport like MLB.
When we arrived back in Atlanta there was the usual crush of humanity on the concourses and on the train leading to the terminal. Granted, ATL is a huge hub and many of the travelers were just passing through town. The Space Coast is a good bit smaller population wise than the Atlanta Metro area. Still, if air travel is an indicator of the vibrancy of a local economy, I am happy that I sell real estate in the Atlanta market.
Friday, April 10, 2009
Wednesday, April 8, 2009
Monday, April 6, 2009
1031 Exchange Issues
The latest challenge to the free flow of transactions in the commercial real estate market involves a “1031 Exchange”. These transactions, named after the Section 1031 of the Internal Revenue Code allows for a deferral of any gain that results from the sale of a property, if the proceeds of the sale are reinvested in a similar or “like kind” property.
The tax deferred exchange can be simultaneous or it can be delayed. It can also involve multiple parties.
In a delayed exchange, the proceeds of the sale of the “relinquished” property are held by a third party known as a Qualified Intermediary until a “substitute” property is found. The Seller has 45 days after selling his property to identify a several possible new properties and 180 days in which to acquire one of the identified properties. In the meantime, the proceeds of the sale are held by the Intermediary.
In many cases the Intermediary is allowed to invest the money they are holding for a seller in some safe instrument and retain any interest earned on the money. In the last year or so, several Intermediaries have had to file bankruptcy because the investment instruments turned out to be illiquid and the Intermediary was not able to fund the purchase of the substitute property. In this case, a seller may be liable for the taxes in the gain from the sale of the first property and have little or no money left to either pay the tax or buy another property.
The lesson learned here is that is very important to perform proper due diligence on any Intermediary which focuses on the overall financial health of the Intermediary and where your money will be invested until the substitute property is acquired.
The tax deferred exchange can be simultaneous or it can be delayed. It can also involve multiple parties.
In a delayed exchange, the proceeds of the sale of the “relinquished” property are held by a third party known as a Qualified Intermediary until a “substitute” property is found. The Seller has 45 days after selling his property to identify a several possible new properties and 180 days in which to acquire one of the identified properties. In the meantime, the proceeds of the sale are held by the Intermediary.
In many cases the Intermediary is allowed to invest the money they are holding for a seller in some safe instrument and retain any interest earned on the money. In the last year or so, several Intermediaries have had to file bankruptcy because the investment instruments turned out to be illiquid and the Intermediary was not able to fund the purchase of the substitute property. In this case, a seller may be liable for the taxes in the gain from the sale of the first property and have little or no money left to either pay the tax or buy another property.
The lesson learned here is that is very important to perform proper due diligence on any Intermediary which focuses on the overall financial health of the Intermediary and where your money will be invested until the substitute property is acquired.
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