56 THE QUEENS COURIER • QUEENS BUSINESS • MAY 9, 2019 FOR BREAKING NEWS VISIT WWW.QNS.COM
queens business
Elder Law Minute TM
Deferring Payment of Capital Gains Taxes on the Sale of Property
BY RONALD A. FATOULLAH, ESQ.
AND STACEY MESHNICK, ESQ.
Many property owners are unaware of a
strategy that allows deferring payment of capital
gains taxes on s ale of a property. Section
1031 of the IRS Code allows deferring payment
of taxes on the profi t from the sale
of a property as long as the investor purchases
another “like-kind property”. As such,
an investor must exchange one property for
another property ( or properties) of similar
value; hence the term “1031 Exchange.”
Once the property is cashed out, payment
of taxes will be required. But in the interim an
investor can trade properties without incurring
a tax obligation.
To qualify as a 1031 exchange, the property
being sold and the property being acquired
must be “like-kind.” Like-kind property means
that both the original and replacement properties
are of “the same nature or character,
even if they diff er in grade or quality.” In other
words, you can’t exchange dry cleaning equipment
for an apartment building, because they
are not the same asset. In terms of real estate,
you can exchange almost any type of property,
as long as it’s not personal property.
In order to completely avoid paying any
taxes upon the sale of a property, the IRS
requires that the net market value and equity
of the property purchased must be the same as,
or greater than the property sold. If that is not
the case, it will not be possible to defer 100%
of the tax. So, for example, if an investor is selling
a $1,000,000 property that has a $550,000
ELDER LAW
loan, he or she would have to buy a replacement
property for $1,000,000 or more with
$450,000 or more equity.
In order for the exchange to be completely
tax-free a taxpayer must not receive “boot”.
Th e diff erence in property values is called
“boot,” which is the amount the property
owner will need to pay capital gains taxes on.
Any boot received is taxable to the extent of
gain realized on the exchange. Th e tax return,
and name appearing on the title of the property
being sold, must be the same as the tax
return and title holder of the buyer of the new
property.
Th e property owner has 45 calendar days
aft er closing on the fi rst property to identify
up to three potential properties of like-kind.
Th is can be very challenging depending on
the amount of cash available. An exception to
this is known as “the 200% rule.” In this situation,
one can identify four or more properties
as long as the combined value of the four properties
does not exceed 200% of the value of the
property sold.
Th e replacement property must be received
and the exchange completed no later than 180
days aft er the sale of the exchanged property
OR the due date of the income tax return
(with extensions) for the tax year in which
the relinquished property was sold, whichever
comes fi rst.
Th ere are four main types of like-kind
exchanges: simultaneous, delayed, reverse, and
construction/ improvement exchange.
A simultaneous exchange occurs when the
replacement property and relinquished property
close on the same day. Even a short
delay can result in the disqualifi cation of the
exchange and result in immediate full taxation
Th e delayed like-kind exchange, which is
the most commonly chosen type of exchange,
occurs when the individual relinquishes the
original property before he acquires replacement
property. Th e seller is responsible for
marketing his property, securing a buyer, and
executing a sale and purchase agreement before
the delayed exchange can be initiated. Th e seller
must then hire a third-party exchange intermediary
to initiate the sale of the relinquished
property and hold the proceeds from the sale
in a binding trust for up to 180 days while
the seller acquires a like-kind property. Th e
investor has a maximum of 45 days to identify
the replacement property and 180 days to
complete the sale of his or her property. Th e
extended timeframe is one of the reasons that
the delayed exchange is so popular.
A reverse exchange, also known as a forward
exchange, allows an investor to acquire
a replacement property through an exchange
accommodation titleholder without fi rst identifying
the replacement property as such. Th e
investor may temporarily “park” either the
replacement or relinquished property in an
LLC created by the exchange accommodation
titleholder, however, the investor must identify
which property they intend to “park” prior
to transferring any property to the LLC. Th e
LLC will then hold the property until a buyer
for the relinquished property can be found.
In an instance where replacement property
is “parked”, investors still only have 45 days
to identify which property is going to be sold
as the relinquished property, and a failure to
close on the relinquished property within 180
days will result in a forfeit of the exchange.
Th e construction exchange allows individuals
to use their tax-deferred dollars to enhance
the replacement property while it is placed in
the hands of a qualifi ed intermediary for the
remainder of the 180 day period. Th e improvements
must be in place before the taxpayer can
take title back from the qualifi ed intermediary.
Ronald A. Fatoullah, Esq. is the founder
of Ronald Fatoullah & Associates, a law fi rm
that concentrates in elder law, estate planning,
Medicaid planning, guardianships, estate
administration, trusts, wills, and real estate.
Stacey Meshnick, Esq. is a senior staff attorney
at the fi rm who has chaired the fi rm’s
Medicaid department for over 15 years. Th e
law fi rm can be reached at 718-261-1700, 516-
466-4422, or toll free at 1-877-ELDER-LAW
or 1-877-ESTATES. Mr. Fatoullah is also a
partner with Advice Period, a wealth management
fi rm that provides a continuum of
fi nancial and investment advice for individuals
and businesses, and he can be reached at
424-256-7273.
RONALD FATOULLAH
ESQ, CELA*
editorial
Questions That Will Get You Hired
Dear Mindy: I have been preparing
for my interviews and
have the answers to the questions
that I think the interviewer
will ask. But I don’t know
what to ask my future employer.
Questioning in Queens
Dear Questioning: Th e questions
you ask during your interview
can make the diff erence
between getting hired and not
getting the job. Don’t squander
this opportunity by asking questions
that will not move you forward
in the interview process.
Save benefi t and vacation questions
for later in the process. Use
some of the suggestions below to show the
interviewer why you are diff erent than the
other candidates and how you could be an
asset to their organization.
How does this role impact
your company’s mission?
It is important for you to understand the
reason the position exists before you make
the decision to join an organization. Th ere are
several follow up questions to the interviewer’s
response. Is it a new role, and if so, why is
it necessary? Is it a replacement
role and if so, why is it vacant?
Th e answers to these questions
will help you to understand if
this role will fulfi ll your career
goals and if those goals align
with the company’s culture and
mission.
What do you expect
someone in this position
to accomplish in
the fi rst 60-90 days?
Th is thoughtful question shows
the interviewer you are ready to
start contributing to the organization
from day one. Take notes
during this section of the interview so that
you can refer to them when you get the job.
What do your most successful
employees do diff erently
than other employees?
Th is question is similar to “How do you
defi ne success in your company?” Th e answer
to this question can help you understand
what specifi c behaviors will lead to your success
and if you will fi t into the new organization’s
culture.
What is the biggest challenge facing
the organization today?
Th e answer to this question will give you
an opportunity to think on your feet and possibly
off er some solutions to the interviewer.
Even if you don’t feel you can off er a solution,
you will learn what the organization considers
valuable.
Is there anything about my background
that concerns you?
Addressing objections while you are still in
the interview will help you to secure the job.
You can respond to concerns by explaining
specifi cally how you would easily transition
into the new role. In addition, this will give
you an opportunity to address the objections
in a follow up note.
What are the opportunities for
growth and advancement?
Th e answer to this question will help you
understand the structure of the organization
and how you could advance your career. Th is
is a great way to learn about various ways to
progress or move into diff erent roles. In addition
the interviewer may off er information
about how the organization helps employees
with continuing education, training or professional
development.
What are the next steps in this process?
If the interviewer hasn’t already shared this
information, it’s important to ask about their
timeline so you’re aware of when you could
be notifi ed of a second interview, or a potential
off er. If they say that they have just begun
the interview process for this role, you know
that you will have to wait longer than if they
say we will decide within the next week. Th is
will also help you to frame your follow up
strategy.
I always suggest that my clients have fi ve
questions prepared and ask two to three
questions, depending on how the interview
is going. Being prepared with thoughtful,
well researched questions shows the interviewer
that you are serious about doing well
in their organization and would be a great
new hire.
Mindy Stern, SPHR, SHRM-SCP, ACC is
a trusted HR advisor, career and leadership
coach, author, speaker and president of AIM
Resource Group Inc. Visit the website at www.
aimresourcegroup.com or contact mstern@
aimresourcegroup.com to learn how to ace
your interview.
EMPLOYMENT
MATTERS
MINDY STERN
SPHR, SHRM-SCP,
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