1031 Exchange Guide
Section 1031 Exchange Guide
*Educational Resource provided by Fyntex.
What is a tax-deferred exchange?
A tax-deferred exchange represents a simple, strategic method for selling a qualifying property and the subsequent acquisition of another qualifying property within a specific time frame.
Although the logistics of selling one property and buying another are virtually identical to any standard sale and purchase scenario, an exchange is different because the entire transaction is memorialized as an exchange and not a sale. It is this distinction between exchanging and simply selling and buying that ultimately allows the taxpayer to qualify for deferred gains treatment. So, essentially, sales are taxable and exchanges are not.
Internal Revenue Code, Section 1031
Because exchanging is an IRS-recognized approach to the deferral of capital gain taxes, it is important for us to appreciate the components and intent of such a tax-deferred or tax-free transaction. It is in Section 1031 of the Internal Revenue Code that we find the essentials of a successful exchange. Additionally, it is within the like-kind Exchange regulations, previously issued by the Department of the Treasury, that we find the specific interpretation of IRS and generally accepted standards and rules for completing a qualifying transaction.
Why consider exchanging?
Any property owner or investor who expects to acquire a replacement property subsequent to the sale of an existing property should consider an exchange. To do otherwise could result in the payment of capital gain taxes in amounts exceeding 20 to 30%, depending on the appropriate combined federal and state tax rates. In other words, when purchasing replacement property without the benefit of an exchange, your buying power is dramatically reduced and represents only 70-80% of what it did previously.
The following diagram illustrates the benefits of exchanging versus selling:
Misconceptions about Tax-Deferred Exchanges
Before we continue with identifying the various types of exchange strategies and their associated rules, let’s identify four common exchange misconceptions.
All exchanges must involve swapping or trading with other property owners.(NO)
Before delayed exchanges were codified in 1984, all exchange transactions required the actual swapping of deeds and simultaneous closing among all parties. Often these exchanges consisted of dozens of exchanging parties, as well as numerous exchange properties. Today, however, there is no requirement to swap your property with someone else in order to complete an exchange. The rules have been streamlined to the extent that the current process reflects more of your qualifying intent rather than the logistics of the property closings.
All exchanges must close simultaneously. (NO)
Although there was a time when all exchanges had to be closed on a simultaneous basis, they are rarely completed in this format any longer. In fact, a majority of exchanges are now closed as delayed or deferred exchanges.
Like-kind means purchasing the same type of property that was sold. (NO)
The definition of “like-kind” is often misinterpreted to mean the property being acquired must be utilized in the same form as the property being exchanged. In other words, apartments for apartments, hotels for hotels, farm for farm, etc. However, the true definition is more reflective of intent than use. Accordingly, there are currently two types of property that qualify as like-kind.
- Property held for investment
- Property held for a productive use in a trade or business
Exchanges must be limited to one exchange and one replacement property. (NO)
This is another exchange myth. Neither the Internal Revenue Code nor the Treasury regulations include provisions that restrict the number of properties that can be involved in an exchange. Therefore, exchanging several properties for one replacement property or relinquishing (selling) one property and acquiring several in return are perfectly acceptable strategies.
Parties to an Exchange
In a typical delayed or deferred exchange scenario, three parties are involved.
In phase one (the sale of your exchange or relinquished property), the parties include the taxpayer (also called the “exchanger”), the buyer or purchaser, and the qualified intermediary (also called the “facilitator”).
In phase two (the purchase of your replacement property), the parties include the taxpayer (also called the “exchanger”), the seller, and the qualified intermediary (also called the “facilitator”).
Basic Exchange Rules (Deferring Capital Gain)
Let’s look at a basic concept that applies to all exchanges. You can use this concept to fully defer the capital gain taxes realized from the sale of your relinquished property.
- The purchase price of the replacement property must be equal to or greater than the net sale price of the relinquished property.
- All equity received from the sale of the relinquished property must be used to acquire the replacement property.
- You must replace your debt.
To the extent that any of these rules is abridged, a tax liability accrues to the exchanger. If the replacement property purchase price is less, a tax is incurred. To the extent that not all of the equity is moved from the relinquished to the replacement property, a tax is incurred. This is not to say that the exchange doesn’t qualify for these reasons. Partial exchanges do in fact qualify for partial tax deferral. It simply means that the amount of any discrepancy is taxed as “boot” or non-like-kind property.
Types of Exchanges
Although the vast majority of exchanges occurring today are delayed exchanges, let us briefly explain a few other exchanging alternatives.
Prior to Congress modifying the Internal Revenue Code that relates to exchanges and formally approving the concept of delayed exchanging, virtually all exchanges were simultaneous. To qualify as a simultaneous exchange, both the relinquished property and the replacement property must close and record on the same day.
Some investors still try to complete simultaneous exchanges, primarily to avoid or reduce the payment of multiple closing or exchange fees to a facilitator. Attempting to do so, however, involves significant danger and legal exposure. Unforeseen events can cause closing on one of the properties to be delayed, leaving the investor with a failed exchange and the obligation of paying taxes that otherwise would have been deferred. For example, if the properties are located in different counties, it is highly unlikely that the closing can take place on the same day. If two different titles, escrows, closing firms, or attorneys are involved, it is virtually impossible for both to have the funds to close on possession the same day. With “Good Funds” laws existing in many states, an escrow holder or closer cannot disburse funds that are not actually in their possession. In directing an escrow holder or closer to disburse funds for the purchase of a replacement property, the IRS could contend that the investor had what is considered “constructive receipt” of the proceeds of the sale, and therefore taxes on the gain would be due. However, Section 1031 regulations contain what is referred to as a “Safe Harbor” provision, which provides that in the event a facilitator or intermediary is used in a simultaneous exchange, and the transaction proves not to be simultaneous, the exchange cannot fail simply for that reason.
Construction and Improvement Exchanges
In some cases, the replacement property requires new construction or significant improvements to make it viable for the specific purpose the exchanger has intended for it. Such construction or improvements can be accomplished as part of the exchange process, with payments to contractors and other suppliers being made by the facilitator from funds held in a trust account. Therefore, if the replacement property is of lesser value than the relinquished property at the time of the original transaction, the improvement or construction costs can bring the value of the replacement property up to an exchange level or value that would allow the transaction to remain completely tax deferred.
A reverse exchange is actually a misnomer. It actually represents an exchange where the exchanger locates a replacement property and wants to acquire it before the actual closing on the relinquished property. Since exchangers cannot purchase a replacement and later exchange into property that they already own, they must find a method to acquire the replacement property and still maintain the integrity of the exchange.
The most current reverse exchange approach is for the exchanger to arrange the acquisition of the replacement property by adding enough cash (or arranging suitable financing) to buy the new property. The title for the new property is then held by an exchange accommodation titleholder or EAT (an LLC created by the qualified intermediary). The EAT holds title to the replacement property until such a time within the 180-day exchange period that the relinquished property is sold. At that time, either the replacement property is deeded to the exchanger by the EAT, or the EAT itself is transferred to the exchanger.
Reverse Exchanges – Replacement Title with EAT
Delayed or Deferred Exchanges
Generally, when people discuss exchanges, the type of exchange they are referring to is the delayed or Starker exchange. This term comes from the name of the exchanger who was first challenged for a delayed exchange by the IRS. From this tax court conflict came the code change in 1984 that formally recognized the delayed exchange for the first time. As mentioned earlier, this is now the most common type of exchange.
In a delayed exchange, the relinquished property is sold at time 1, and after a delay of up to 180 days, the replacement property is acquired at time 2.
Following are the traditional rules and time constraints for completing a qualifying delayed exchange:
Property that qualifies for exchange under Section 1031 must be “like-kind,” which is defined in the regulations as follows:
- Property held for productive use in a trade or business, such as income property.
- Property held for investment.
Therefore, not only does rental or other income property qualify, so does unimproved property that has been held as an investment. Such unimproved property can be exchanged for improved property of any type, or vice versa. Also, one property may be exchanged for several, or vice versa. This means that almost any property that is not a personal residence or second home is eligible for exchange under Section 1031.
The exchanger has a maximum of 180 days from the closing of the relinquished property or the due date of that year’s tax return, whichever occurs first, to acquire the replacement property. This is called the “exchange period.” The first 45 days of that period is called the “identification period.” During these 45 days, the exchanger must identify the candidate or target property to be used for the replacement property. The identification must be in writing, signed by the exchanger, and received by the facilitator or other qualified party (faxed, postmarked, or otherwise identifiably transmitted through Federal Express or another dated courier service or via digital signature).
This must all occur within the 45-day period. Failure to accomplish this identification causes the exchange to fail.
Three rules exist for the correct identification of replacement properties.
- The “three property rule” dictates that the exchanger may identify three properties of any value, one or more of which must be acquired within the 180-day exchange period.
- The “two hundred percent rule” dictates that if four or more properties are identified, the aggregate market value of all properties may not exceed 200 percent of the value of the relinquished property.
- The “ninety-five percent exception” dictates that in the event the other rules do not apply, if the replacement properties acquired represent at least 95 percent of the aggregate value of properties identified, the exchange still qualifies.
As a caveat, we should mention that these identification rules are absolutely critical to any exchange. No deviation is possible and the Internal Revenue Service does not grant extensions.
* Ironically, although only approximately 3 to 5 percent of exchanges are audited, the few exchanges that don’t pass upon audit typically fail because of discrepancies in identification.
Mechanics of a Deferred or Delayed Exchange
It is important to carefully plan any exchange with the help of an experienced, competent, and creative legal or exchange professional, preferably one who is familiar with the tax code in general, not just Section 1031, and who has extensive experience with different kinds of exchanges. Thorough planning can help you avoid many subtle exchanging pitfalls and ensure that you accomplish the goals that the transaction is intended to facilitate.
Once the planning is complete, the exchange structure and timing are decided, and the relinquished property is sold and the transaction is closed, the facilitator becomes the repository for the proceeds of the sale. The money is kept in the exchanger’s qualified escrow account until the replacement property is located and instructions are received to fund the purchase. The funds are then wired or sent to the closing entity in the most appropriate and expeditious manner, and the replacement property is purchased and deeded directly to the exchanger. All the necessary documentation to clearly memorialize the transaction as an exchange is provided by the facilitator, including the exchange agreement, assignment agreement, and appropriate closing instructions.
The issue of constructive receipt is one that continues to concern taxpayers, their accountants, and tax advisers alike. Over the years that the public has benefited from tax-deferred exchanges, the courts have reviewed various elements of control in an attempt to determine whether the taxpayer has in fact exercised sufficient control over the proceeds from the disposition of the relinquished property so as to be considered in receipt of such funds and thereby taxed. Clearly, if a taxpayer receives the proceeds from the disposition of a relinquished property, the use of the term’s “exchange” and “relinquished property” have no meaning since the transaction is viewed as a sale and the taxpayer is taxed accordingly. When someone other than the taxpayer receives and controls the use of the proceeds from the disposition of the relinquished property, the relationship between that person or entity and the taxpayer is closely scrutinized to determine whether the taxpayer has constructively received the funds.
Selecting Your Facilitator or Qualified Intermediary
Relatively few federal regulations govern the function of facilitators, other than the fiduciary responsibilities that govern the conduct of any entity holding or handling other people’s money. For this reason, care in selecting and evaluating a facilitator for you or a client’s exchange is important. Select a facilitator as you would an attorney for personal representation or a physician for treating your children. Look for experience in doing exchanges and reputation in the real estate, legal, or tax communities. Talk to escrow and closing professionals that handle exchanges and get their opinion. If possible, choose a facilitator who is thoroughly familiar with the process, since other aspects of the process (e.g., the handling of promissory notes, bulk transfers, or other variations to the overall transaction) often bear significantly on your exchange. Ask about the security of your funds, and what options you as an exchanger have to assure that your funds are safeguarded. Although the costs and fees for an exchange are relatively insignificant, ask about them and get a clear explanation of what you will be charged for. With a few notable exceptions, fees are similar from one facilitator to the next. What is of far greater importance is the competence and ability of the facilitator and other personnel to complete your exchange promptly, professionally, and legally.
Tax Consequences of Exchanging
To assess the tax consequences inherent in any exchange transaction, you need to understand the definition and exchange-related meaning of terms such as “cost basis,” “adjusted basis,” “capital gain,” “net sales price,” “net purchase price,” and “boot.”
Cost basis: This is where all tax-related calculations in an exchange begin. Cost basis essentially refers to the original cost of acquiring a given property. For example, if the original purchase price of the property you anticipate exchanging was $175,000, your cost basis is $175,000.
Adjusted basis: At the time of your exchange, you need to determine your current or adjusted basis. This is accomplished by subtracting any previously reported depreciation from the total of the original cost basis, plus the value of any improvements.
Capital gain: “Realized gain” and “recognized gain” are two types of gains found in exchange transactions. Realized gain reflects the difference between the total consideration or total value received for a given property and the adjusted basis.
Recognized gain reflects the portion of the realized gain that is ultimately taxable. The difference between realized and recognized gain exists because not all realized gain is ultimately determined to be taxable and issues such as boot can affect how and when gain is recognized.
Net sales price: This figure simply represents the sales price, less costs of sale.
Net purchase price: This figure simply represents the purchase price, less costs of purchase.
Boot: When considering an exchange of real property, the receipt of any consideration other than real property is determined to be “boot.” So, essentially, boot is any property received that is not considered like-kind. Remember, non-like-kind property in an exchange is taxable. Therefore, boot is taxable.
Two types of boot can occur in any given exchange. They are “mortgage boot” and “cash boot.” Mortgage boot typically reflects the difference in mortgage debt that can arise between the exchange of the relinquished property and the replacement property.
As a general rule, the debt on the replacement property has to be equal to, or greater than, the debt on the relinquished or exchanged property. If it is less, you have what is called “overhanging debt” and the difference is taxable.
Let’s assume, for example, that you are selling your relinquished property for $375,000 and that it has a mortgage of $250,000. At closing, the mortgage is paid off and the balance of $125,000 is held by your facilitator.
Suppose that you then find a new property costing $350,000, with a mortgage of $225,000, that you assume. The assumption of this debt, along with your exchange trust fund of $125,000, completes your purchase. Under this example, you have to pay taxes on $25,000 of capital gains because your debt decreases by that amount.
Likewise, cash boot reflects the amount of cash or other value received.
New Adjusted Basis: This figure reflects the necessary adjustments to your basis after the replacement property is acquired. Since the amount of deferred gain must be considered, the following calculation serves as a method for determining the new adjusted basis on the replacement property.
A Few Common Questions and Answers
Equity and Gain
Is my tax based on my equity or my taxable gain?
Tax is calculated upon the taxable gain. Gain and equity are two separate and distinct items. To determine your gain, identify your original purchase price, deduct any previously reported depreciation, and then add the value of any improvements that have been made to the property. The resulting figure reflects your cost or tax basis. Your gain is then calculated by subtracting the cost basis from the net sales price.
Deferring All Gain
Is there a simple rule for structuring an exchange where all the taxable gain will be deferred?
Yes, if you do the following:
- Purchase a replacement property that is equal to or greater than the net selling price of your relinquished (exchange) property.
- Move all equity from one property to the other; the gain will be totally deferred.
- Replace your debt.
Definition of Like-Kind
What are the rules regarding the exchange of like-kind properties? May I exchange a vacant parcel of land for an improved property or a rental house for a multiple unit building?
Yes, like-kind refers more to the type of investment than to the type of property. Think in terms of investment real estate for investment real estate, business assets for business assets, etc.
Simultaneous Exchange Pitfalls
Is it possible to complete a simultaneous exchange without an intermediary or an exchange agreement?
While it may be possible, it is not wise. With the safe harbor addition of qualified intermediaries in the Treasury regulations and the recent adoption of good funds laws in several states, it is very difficult to close a simultaneous exchange without the benefit of either an intermediary or exchange agreement. Since two closing entities cannot hold the same exchange funds on the same day, serious constructive receipt and other legal issues arise for the exchanger attempting such a simultaneous transaction. The addition of the intermediary safe harbor was an effort to abate the practice of attempting these marginal transactions. It is the view of most tax professionals that an exchange completed without an intermediary or exchange agreement does not qualify for deferred gain treatment. If already completed, the transaction would not pass an IRS examination due to constructive receipt and structural exchange discrepancies. The investment in a qualified intermediary is insignificant in comparison to the tax risk associated with attempting an exchange that could be easily disqualified.
How long must I wait before I can convert an investment property into my personal residence?
A few years ago, the Internal Revenue Service proposed a one-year holding period before an investment property could be converted, sold, or transferred. Congress never adopted this proposal; therefore, no definitive holding period currently exists. However, this should not be interpreted as an unwritten approval to convert investment property at any time. Because the one-year holding period may or may not reflect the intent of the IRS, most tax practitioners advise their clients to hold property for more than two years before converting it into a personal residence
Remember, intent is very important. It should be your intention at the time of acquisition to hold the property for its productive use in a trade or business or for its investment potential.
What if my property was involuntarily converted by a disaster or I was required to sell due to a governmental or eminent domain action?
Involuntary conversion is addressed in Section 1033 of the Internal Revenue Code. If your property is converted involuntarily, the time frame for reinvestment is extended to 24 months from the end of the tax year in which the property was converted. You may also apply for a 12-month reinvestment extension.
Facilitators and Intermediaries
Is there a difference between facilitators?
Most definitely. As in any professional discipline, the capability of facilitators varies based on their exchange knowledge, experience, and real estate and/or tax familiarity.
Facilitators and Fees
Should fees be a factor in selecting a facilitator?
Yes; however, they should be considered only after first determining each facilitator’s ability to complete a qualifying transaction. This can be accomplished by researching their reputation, knowledge, and level of experience.
Personal Residence Exchanges
Do the exchange rules differ between investment properties and personal residences? If I sell my personal residence, what is the time frame in which I must reinvest in another home and what must I spend on the new residence to defer gains taxes?
The rules for personal residence rollovers were formerly found in Section 1034 of the Internal Revenue Code. You may remember that those rules dictated that you had to reinvest the proceeds from the sale of your personal residence within 24 months before or after the sale, and you had to acquire a property that reflected a value equal to or greater than the value of the residence sold. These rules were discontinued with the passage of the 1997 Tax Reform Act. Currently, if a personal residence is sold, provided that residence was occupied by the taxpayer for at least two of the last five years, up to $250,000 (single) and $500,000 (married) of capital gains is exempt from taxation.
Exchanging and Improvements
May I exchange my equity in an investment property and use the proceeds to complete an improvement on a vacant lot I currently own?
Although the attempt to move equity from one investment property to another is a key element of tax-deferred exchanging, you may not exchange into property you already own. You may, however, complete an improvement exchange that utilizes an exchange accommodation titleholder (EAT), created by the facilitator, to hold title while improvements are completed. See elsewhere for instructions on construction or improvement exchanges.
Partnership or Partial Interests
If I am an owner of investment property in conjunction with others, may I exchange only my partial interest in the property?
Yes. Partial interests qualify for exchange within the scope of Section 1031. However, if your interest is not in the property but actually in the partnership that owns the property, your exchange does not qualify. This is because partnership interests are excepted from Section 1031. Don’t be confused! If the entire partnership desired to stay together and exchange their property for a replacement, that would qualify.
Are reverse exchanges considered legal?
Yes, although they can sometimes become complex and always require appropriate planning.
We have a reverse exchange specialist on our team who can help plan and facilitate even the most complex reverse or build-to-suit transactions.
Why are the identification rules so time restrictive? Is there any flexibility within them?
The current identification rules represent a compromise that was proposed by the IRS and adopted in 1984. Prior to that time, time-related guidelines did not exist. The current 45-day provision was created to eliminate questions about the time period for identification – there is absolutely no flexibility written into the rule and no extensions are available.
In a delayed exchange, is there any limit to property value when identifying by using the two hundred percent rule?
Yes. Although you may identify any three properties of any value under the three property rule, when using the two hundred percent rule there is a restriction. When identifying four or more properties, the total aggregate value of the properties identified must not exceed more than two hundred percent of the value of the relinquished property.
An additional exception exists for those whose identification does not qualify under the three property or two hundred percent rules. The ninety-five percent exception allows the identification of any number of properties, provided the total aggregate value of the properties acquired is at least 95 percent of the properties identified.
Should identifications be made to the intermediary or an attorney, escrow, closer, or title company?
Identifications may be made to any party listed above. However, the escrow holder or closer is often not equipped to receive your identification if they have not yet opened a transaction file. Therefore, it is easier and safer to identify through the intermediary or facilitator, provided the identification is postmarked or received within the45-day identification period.
Although tax-deferred exchanges have existed in some form since the 1920s, history alone does not bestow the type of knowledge necessary to determine whether your situation would benefit from an exchange.
So, for that reason, we attempt to provide a practical – or as close as possible – guide to how exchanges work in their most basic form, as well as the logistics you can expect when considering an exchange.
However, we have a caveat. Fyntex does not purport to be the last word on every issue related to tax-deferred exchanges. We are simply practitioners who have encountered virtually every exchange scenario possible because we’ve been involved in the arena for some time. That doesn’t mean you shouldn’t discuss your facts and circumstances with a trusted and capable tax advisor. With that said, one thing we have done is to deliberately structure our exchange operational capability and fund security protocols around the relationships we have built with our banking partners. They are specific institutions that understand and appreciate our desire to complete and qualify every exchange in a compliant form, without risk to any client exchange funds.
Let’s be honest, every potential exchanger should first consider the following questions: (1) Is my exchange facilitator or qualified intermediary properly experienced and equipped to help me? (2) How safe is my money (exchange proceeds) in their possession?
Fyntex thinks it can address both questions through our unique approach. First, we believe in complete transparency with our clients. We also understand that prospective exchangers source information and approach their personal due diligence differently than in the past. The fact is that individuals are perfectly willing to Google their way through information and resources at their own pace and draw their own conclusions about how to do an exchange and who should assist them in completing it.
That’s why we give you all the information we do. We believe you are fully capable of understanding the rules of any exchange. And while they are specific, they don’t have to be onerous or difficult to accommodate.
We have a singular answer to both questions, and it is based on our unique relationship with and reliance upon our exclusive banking partners. Everyone at Fyntex is a long-time certified public accountant (CPA), attorney, or industry veteran, and we all understand that the only true security of funds comes when your exchange proceeds are respectfully deposited into a properly restricted, qualified escrow account. This is accomplished through recognized disbursement protocols where no exchange funds ever move without the explicit written authorization of the exchanger – and a bank officer.
So, about that second question: How safe are your exchange proceeds while in a qualified escrow account with one of our partner banks? As safe as they could possibly be! Remember, our banking partners transact all their business and handle all funds entrusted to their custody according to standards established by banking regulators at both the state and federal levels. This is not the case for all exchange facilitators or lawyers with a trust account.
In developing this tutorial, our singular desire is to create a brief synopsis of the fundamentals of tax-deferred exchanges. Where possible, we paraphrase directly from the like-kind exchange regulations issued by the U.S. Department of the Treasury. However, in cases where the regulations are considered incomplete or inapplicable, we seek to isolate the standards and practices that active tax professionals and facilitators consider common and appropriate across the country.
Also, in compiling a tutorial of this type, we’ve opted for brevity, dealing only with those issues that have emerged from the most common exchange scenarios. Therefore, we have deliberately left out obscure exchange nuances or extenuating circumstances in an effort to focus on exchanging basics.
However, we have another caveat: Exchanging can sometimes involve complicated legal and tax issues. The failure to comply with applicable like-kind exchange regulations can jeopardize the potential tax-deferred status of your transaction. Therefore, when considering an exchange, seek the counsel of a qualified legal, tax, or exchange professional. Advise them of the facts and circumstances of your proposed transaction and secure the services of a recognized and respected exchange facilitator.
To ensure compliance with requirements imposed by the IRS, we must inform you that the content posted on this website does not contain anything that is intended as legal or tax advice and that nothing herein can be relied upon as legal or tax advice. Further, the IRS wants us to inform you that nothing herein can be used for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein. If assisting with your Section 1031 tax-deferred exchange, Perch Wealth cannot advise the owner concerning specific tax consequences or the advisability of a tax-deferred exchange for tax purposes. We recommend that anyone contemplating an exchange seek the advice of an accountant and/or attorney.
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- There’s no guarantee any strategy will be successful or achieve investment objectives;
- All real estate investments have the potential to lose value during the life of the investments;
- The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- All financed real estate investments have potential for foreclosure;
- These 1031 exchanges are offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
- If a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits;
- Tax benefits are not guaranteed and are subject to changes in the tax code.