Legal Representation & Tax Structuring
Dilendorf Law Firm assists local and international real estate clients with structuring complex tax-deferred exchanges under IRC Code Section 1031 (“1031 Exchange”) for all types of investment real estate in NYC and nationwide, including condominium and cooperative units/apartments, mixed-use and office buildings, and industrial properties.
Advised real estate partners on structuring a complex "swap and drop" 1031-exchange involving dissolution of partnership and distribution of the tenant-in-common interests in the property to the individual partners
Advised a foreign client on structuring a reverse 1031-Exchange for the sale of a mixed-use property in Midtown Manhattan
Represented out-of-state client in a 1031-Exchange involving the sale of investment property in NYC and use of the sale proceeds for purchasing a replacement property in Virginia
Advised a foreign client on the mechanics of obtaining FIRPTA withholding certificate during a 1031-Exchange
Represented a local investor in the sale and 1031-Exchange of investment condo in Manhattan
Advised a client on structuring a complex "drop and swap" transaction involving three LLC members
Advising client on structuring built-to-suit 1031-exchange to build and improve the replacement property (commercial condo)
With a properly structured 1031-Exchange, taxpayers can defer payment of the capital gain tax after the sale if they reinvest the sales proceeds in the other “like-kind” property.
Transactions involving tax-deferred exchanges are subject to close scrutiny by the IRS and involve complex Treasury Regulations, Revenue Rulings and Internal Revenue Codes.
We draft and review 1031-Exchange agreements and ancillary documents to make sure that the transaction is properly structured, timely executed and complies with all applicable tax rules.
To determine the most optimal structure for the client’s 1031-Exchange, we carefully analyze the property’s ownership structure, the client’s income tax bracket, the market value and a cost basis of the client’s property, the value of property improvements, reported losses, carryovers, and deductions.
Common 1031-Exchange structures include:
- Simultaneous Exchange
- Delayed Exchange
- Reverse Exchange
- Construction / Improvement (Built-to-Suit) Exchange
- “Drop and Swap” and “Swap and Drop” Exchanges
- Use of Delaware Statutory Trusts for Replacement Property
- Dissolutions and Liquidations of Partnerships Followed by Exchange
Representing the buyers, we negotiate a contract of sale with the seller’s attorney and ensure that the seller agrees to cooperate with our client and the qualified intermediary to complete the underlying 1031-Exchange.
Representing the sellers, we draft contract of sale and negotiate it with the buyer’s attorney. We ensure that the buyer agrees to cooperate at no additional cost to the seller to complete the 1031-Exchange, including assignment of the seller’s contractual rights and obligations to a qualified intermediary.
Our law firm can also assist clients with selecting a qualified intermediary to hold 1031-Exchange proceeds and make sure that such an intermediary has the necessary technical experience to complete the transaction and maintains a bond to cover possible losses.
Delaware Statutory Trust (DST) 1031-Transactions:
Our real estate attorneys are also experienced in structuring DST transactions for 1031-Exchange investors. DST investors own a “beneficial interest” in the trust. This allows investors to own an “undivided fractional interest” in the investment property owned by the trust. Our services include:
- Checking that DST was properly formed and a sponsor made all requisite state filings, including filing Certificate of Trust with the Secretary of State;
- Advising the client on trust structures and fees involved;
- Reviewing a trust agreement/subscription documents and advising the client on his/her rights and obligation under the trust;
- Making sure that the title to the property held in a trust is unencumbered;
- Making sure that a trust is classified as a “trust” under Treasury Regulations Section 301.7701-4;
- Reviewing master-lease agreement(s); and
- Representing a client at closing (DST placement).
It is important to note that Section 1031 does not expressly address the treatment of interests in a DST. The IRS concluded in Revenue Ruling 2004-863 that, under the limited circumstances, beneficial owners of a DST that in turn owns real estate will be treated as owning a direct interest in such real estate for purposes of the nonrecognition provisions of Section 1031. As such, a careful review and due-diligence of DST offering documents are critical to ensure that a trust complies with all the requisite IRS tax rules to satisfy Section 1031 requirements. Our 1031-Exchange lawyers will help you with structuring your DST investment placement.