Tag Archives: Relocation

Attorneys, business relocation, Condemnation, Eminent Domain, Indiana, Indiana eminent domain and relocation regulations, Property Owners, relocation benefits, relocation compensation, relocation planning, right of way

Indiana Eminent Domain Relocation Benefits & Compensation

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Eminent Domain – Indiana

Indiana Includes Relocation Benefits in Its Eminent Domain and Condemnation Laws

In Indiana, relocation benefits in eminent domain follow the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended.  This is also known as the Uniform Relocation Act, the Uniform Act, or more simply the URA.  These regulations are followed when the State or any other public agency uses eminent domain to purchase new right-of-way for a public project and for the relocation of those occupying the property.  These regulations must be followed when state or federal funds are included in the project. Reference: Indiana Code Title 32 Article 24 (IC 32-24).

About The Federal Uniform Relocation Assistance and Real Property Acquisition Policies Act (URA)

The URA describes the types of costs that are eligible for reimbursement, known as relocation benefits, which are available to those being displaced while relocating from real property being purchased or those otherwise impacted by the new right-of-way for the public project. The URA is required to be followed on projects that include federal funding.  It’s listed relocation benefits are minimum requirements where a state or local agency can enhance the level of benefits, but not reduce them.  Non-federally funded projects may not be required to follow the URA, but many states, as Indiana, choose these guidelines or some version of them for their state and local agencies to follow, while others do not. 

You can find the URA described in full within the United States Code (Title 42 USC Chapter 61) and the Code of Federal Regulations (Tile 49 CFR Part 24). However, reading through the URA regulations can be a bit daunting, so I’ve prepared a brief summary of the URA business relocation benefits to help you. The summary is attached below. Please understand that my summary of listed benefits is abbreviated for your convenience as a quick reference. Many of the relocation benefits have requirements, and/or conditions for the business to qualify or be eligible for the benefit.

Relocation Assistance Advisory Services

The displacing public agency will provide what is called Relocation Assistance Advisory Services to each displaced person. Many property owners and business owners choose to self-plan and perform their relocation using the recommendations provided by the condemning public agency’s designated acquisition agent and relocation agent.  This may be a desirable approach for you if you are not too concerned with the amount of money you will receive for your property acquisition or for your business relocation.  Also, if your property or business is uncomplicated, at times, simple issues only need simple solutions. This method is focused more on simplicity and works well for small businesses such as an insurance or real estate office having only a few employees. If your business is more complex, you may need a more in-depth analysis of your relocation needs and reimbursable relocation benefits. For a more complex business relocation, you may consider assistance from an eminent domain relocation consultant.

Eminent Domain and Relocation Consultant

Business Relocation:

An eminent domain relocation consultant, referred to as a move planner within the URA,  can help you gain an understanding of the relocation issues and how to begin with putting your best foot forward when facing an eminent domain relocation and communicating with the condemning public agency.  Once engaged, the consultant’s fees are generally covered by the relocation benefits within the Uniform Act. The consultant should be skilled with: educating you on how relocation benefits within the URA will help you, and where they will not; they should quickly grasp your business situation and its operations; and be fully versed on construction related activities necessary for relocating your business.  These and other skills are necessary so that the consultant can fully inform you, and help you with your critical decision making on your relocation matters, while allowing you to focus more on your business operations.

To find such a consultant, I suggest an internet search of: Eminent Domain Relocation Benefits, Indiana. However, your search will show several eminent domain attorneys listed who talk about relocation benefits. When an attorney is part of the relocation team, their work is usually at a higher legal level and is hopefully based on the relocation consultant’s work. Usually the two will work together on your situation. If your internet search is not successful for you, feel free to call me to discuss your business relocation.

Eminent Domain and Real Property Acquisition:

Eminent Domain Attorney:

If you are a property owner facing eminent domain and potential condemnation, I encourage you to talk with an attorney who regularly practices in eminent domain in your state.  You can find such an attorney by searching the internet for: Eminent Domain Attorney, Indiana.  If that’s not a successful search for you, feel free to call me for some suggestions on who to contact. We regularly work with eminent domain attorneys around the country.

How to Begin Planning Your Business Relocation in Eminent Domain

Eminent domain and business relocations can be rewarding to the business owner by bringing new opportunities to the business with the use of relocation benefits or compensation provided by the public project and its displacing public agency. Unfortunately, too many businesses not only miss key and multiple opportunities, but some even fail to survive, as reported in a federal study in 2005. In my experience, the failures occur because the relocation process and relocation regulations must be understood and closely followed by the business and condemning public agency for the business to receive proper reimbursements of relocation expenses, and those regulations are frequently improperly followed.  Several factors will influence the level of success a business experiences with relocating while following the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA), these include:

Factors Affecting the Level of Success for Business Relocations in Eminent Domain

Several key factors will influence the level of success a business experiences with relocating while following the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) and the State Relocation Regulations. A few of those include:

  • The particular circumstances of the real property being condemned
  • The circumstances of the business type being displaced
  • The condemning public agency’s approach to relocation
  • The ability to soften or overcome those factors listed above
  • The business owner’s approach to relocating their business.

For this discussion, I’ll focus on the business’s most controllable part of the process, the business owner and their approach to relocating while following the URA or state regulations.

Best Practices for Eminent Domain Business Relocation Planning

For the best relocation outcome, the business owner will want to use the proper approach to the relocation process.  There is a cause and effect science to the relocation process, which we want to control to create the best results. It starts with the business owner’s approach to the relocation. Below is a list of best practices that I recommend while advising business owners through their relocations in eminent domain.

  1. Work with the displacing public agency as much as reasonably possible.  Take advantage of the services they offer you.
  2. Educate yourself on your relocation benefits (see my Indiana Eminent Domain Relocation Compensation Regulations cheat sheet below), determine how best to use them for your situation, know how to qualify for them, and how to not lose them.
  3. Avoid these common mistakes listed below and my Top-10 business relocation mistakes when relocating within eminent domain:
    1. Denying that your business can be relocated.
    2. Denying that a certain item or items you own cannot be relocated.
    3. Not gaining ownership or control of fixtures used in your business
    4. Complaining about the public agency, project, or circumstances that interfere with properly planning your business relocation for its best outcome.
    5. Assuming that you can relocate using normal business best practices and expect to receive proper relocation reimbursements.  You must follow the details of the Uniform Act, no matter how seemingly nonsensical they appear.
  4. Start planning early, start before the displacing public agency starts for you (read more on preplanning your eminent domain relocation). Continue your preplanning into relocation planning for developing an actual relocation plan report. You can use my 11-Step Business Relocation Planning as a guide for you. Start your planning with:
    1. Updating your lease to reflect any improvements you have made to the real property and your right to remove your improvements and trade fixtures.
    2. You will want a current inventory of equipment and other personal property that is owned or controlled by your business. If you are using landlord owned fixtures in your business, this is a good time to consider negotiating a purchase of those items to give you the right to remove them and the right to relocation compensation for those items.
  1. Begin searching for a replacement property as soon as you feel or know that your business will be displaced. However, don’t incur costs or move until you have received a Relocation Benefits Eligibility Letter from the displacing public agency.
  2. Dedicate the time necessary for you and/or key employees to organize, plan, and perform the relocation tasks necessary for the duration of the relocation process, while not sacrificing the necessary time for ongoing business operations.
  3. File relocation claims with the displacing public agency as you incur an obligation to the costs.  File claims early and often.
  4. Relocation claims should be well described and supported.  Don’t dump unorganized costs onto the public agency’s relocation agent and expect them to arrive at the best reimbursement for you. No shoe box relocation claim submittals.
  5. Request any public agency claim denials for relocation benefits to be in writing.  Verbal denials from the public agency’s relocation agent are a frequent cause of misinformation and misunderstanding of benefits causing an unnecessary loss of eligible relocation compensation.
  6. If your business is more complicated than a small insurance or real estate office, or, you feel that you are not being properly treated by the displacing public agency, consider talking with an eminent domain relocation consultant.

This summary of best practices will hopefully get you started on the right foot with your business relocation.  Business relocation planning within eminent domain is one of my favorite services I provide and my favorite topic for conversation.  Please feel free to call me to discuss your situation.

Questions and Answers on Eminent Domain and Business Relocations

If you have questions, feel free to contact me for answers while planning your relocation, which may include but not limited to:

  • What do you do next, starting from the point where you are in your relocation process?
  • How do you apply the best practices to your specific business relocation planning?
  • What are your eligible relocation benefits and compensation?
  • How and when do you become eligible for relocation benefits and compensation?
  • How do you prevent a loss of your relocation benefits and compensation?
  • How can you get out of a pickle in your current relocation situation?
  • What do I need to know about the Uniform Relocation Act, relocation advisory services, relocation assistance, and relocation planning?
  • When and why would I want an eminent domain relocation consultant for planning my move? Also, see FAQ of Martyn Daniel.

You can contact me at 425-398-5708 or . There’s no obligation for your contact, it will simply be a good productive conversation. Business owners and their representatives, attorneys, appraisers, and public agency representatives are all welcome to call.

References:

Indiana Department of Transportation (INDOT)

Indiana Code IC 32-24

Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970

United States Code Title 42 USC Chapter 61

Code of Federal Regulations Title 49 CFR Part 24

Indiana Projects

Below is a partial list and links to projects where the Indiana State Department of Transportation (INDOT) will likely be purchasing private property for a project’s new right-of-way under eminent domain and making business relocation payments for business displacements caused by the projects while following the federal Uniform Relocation and Acquisition Act (URA).

I-69 section 6 Project

Mid-States Corridor

If you are aware of other projects or familiar with current events on the above projects, please let us know. We would be pleased to update and share information.

Indiana Eminent Domain Relocation Benefits and Compensation Regulations, Abbreviated

State of Indiana
Indiana Eminent Domain Relocation Compensation Regulations, Abbreviated
Attorneys, Businesses, Eminent Domain, Property Owners

Facing Eminent Domain and Relocation? Get the Best Help from Those that Get the Best Results

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I had the great pleasure and experience with presenting a unique and customized approach to the eminent domain relocation process to the law firm, Sever/Storey, an eminent domain law firm for landowners. This energetic and collaborative group of attorneys quickly recognized how this unique relocation approach would benefit their landowner and business clients. Throughout my interaction with them, they clearly demonstrated their talent, energy, and commitment to provide the best and most complete service to their clients, which will undoubtedly provide the best results for their clients. If you are facing eminent domain or condemnation in Indiana, Illinois, Ohio, or North Carolina, you need to call Sever/Story at 888-318-3761.

Note: Martyn regularly speaks in many parts of the U.S. on relocation issues related to eminent domain, condemnation, and right-of-way to owners, businesses, and attorneys in group and private settings, as well as, to other professionals at continuing legal education seminars. Martyn can be reached at 425-398-5708.

Appraisers, Attorneys, Businesses, Contact Martyn, Eminent Domain, relocation

Would You Choose Lump Sum or Actual Cost Relocation Reimbursement?

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Under Relocation Guidelines featured on my site by state, business owners who must relocate due to eminent domain can choose to receive benefits from the government agency one of two ways.

1) Lump Sum Payment – up to $40,000 based on income

2) Actual Cost Relocation – based on actual eligible costs, some of which are capped.

Lump Sum Payment

Business owners can receive a lump sum or a fixed payment of up to $40,000 and call it a day.  The business owner will move themselves and no other claims can be submitted to the agency for reimbursement.

So if it costs the business owner $300,000 to relocate machinery, office equipment, parts, furniture for example, along with setting up of computers, telephones, heating and air conditioning, the business owner will pay-out-of-pocket for anything over and above the $40,000 amount.

In this example this amount would be $260,000.

In a cash-strapped economy, any out-of-pocket expenses could make or break a business.

Actual Cost Relocation

The following expenses can be reimbursed to the business owner based on the individual and actual costs of the move.

Moving (no maximum amount with one exception):

1. Transportation of Personal Property

2. Packing, crating, unpacking, uncrating of Personal Property

3. Disconnecting, dismantling, removing, reassembling, and reinstalling equipment, machinery, and other personal property

4. Storage of personal property up to 12 months

5. Insurance for the replacement value of personal property during the move and necessary storage

6. Any license, permit, or certification required at the replacement site, which the business had at the displacement location

7. Replacement value of property lost, stolen, or damaged during the move

8. Professional services for planning, moving, and reinstalling the personal property

9. Re-lettering signs and replacing printed materials made obsolete by the move

  • Stationery
  • Notification of the move

10. Actual direct loss of tangible personal property

11. Reasonable cost incurred trying to sell and item that is not to be relocated

12. Purchase of substitute personal property.

13. Searching for a replacement location (Maximum $2,500)

14. Costs to secure professional move bids

15. Low Value/High Bulk

16. Disposal of personal property and hazardous materials

If a business owner does not opt for the lump sum payment and chooses to be reimbursed via actual costs, there are a few expenses which are capped. My next blog will explain and list these items.

If your company has to move due to eminent domain, which option would you choose? Contact Martyn Daniel, Eminent Domain and Business Relocation Consultant to help you answer that question.

 

Businesses, Eminent Domain, Workshop

EMINENT DOMAIN AND BUSINESS RELOCATION WORKSHOP OFFERED FOR CITIZENS AFFECTED BY THE PORTLAND-MILWAUKIE LIGHT RAIL AND COLUMBIA RIVER CROSSING PROJECTS

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Eminent Domain Consultant Spearheads FREE Workshop
Featuring Land Use Attorney Guest Speakers

Bothell, WA – June 7, 2011 Martyn L. Daniel of Martyn Daniel LLC, Bothell, WA, Eminent Domain and Business Relocation Consultant will present a free 2-hour workshop on June 14th, 2011 from 6:30 pm to 8:30 pm at the Milwaukie Center, Milwaukie, OR.  Daniel will discuss the rights and reimbursement benefits for those citizens affected by the Portland-Milwaukie Light Rail and Columbia River Crossing projects.

Special guest speakers will include prominent Lake Oswego, OR Land Use and Eminent Domain Attorneys, Neil N. Olsen and Jim Zupancic of Zupancic Rathbone Law Group whose topics will review the legal rights of those affected by the TriMet mega-transportation plan.

The Portland-Milwaukie Light Rail Project will create a light rail alignment that travels 7.3 miles, connecting Portland State University in downtown Portland, inner Southeast Portland, Milwaukie and north Clackamas County. A number of private and commercial properties will be purchased.

In a DJC Oregon article (4/26) authored by Zupancic and Olsen titled, Portland-Milwaukie light-rail ‘mega project’ moves forward the attorneys state, “Armed with more than $200 million in property acquisition money, TriMet will acquire by agreement or condemnation more than 200 properties or parts of properties for the project’s right-of-way and other purposes. These acquisitions or takings will displace approximately 20 homeowners and more than 60 businesses.”

The attorneys further state, “As the project moves forward, and property acquisitions and takings continue, business owners will not only be wrestling with TriMet over the correct valuation of their real property, but also be facing fundamental challenges to the continued viability of their businesses.”

Martyn Daniel adds, “I’ve received a number of citizen questions regarding valuation of property and how to ensure that relocation claims will be approved that we decided to combine our efforts to spread some light on the impending eminent domain process.”

The public is invited to attend this free event.

Topics will include:

  • Do you know your rights as a business or property owner?
  • Do you have concerns regarding relocation reimbursements and property takings?
  • Did you know that relocation benefits may be available to you?
  • Did you know how to find hidden and often overlooked relocation costs?
  • Learn how to turn denied claims into approved claims.
  • Will you know how to analyze your property offer?
  • Do you know how to respond to your property offer?
  • What can you do if you do not agree with the offer you have received?

 

Registration is required by June 12th, 2011. A Question and Answer session will be offered at the end of the workshop.

To register, visit www.EminentDomainWorkshop.com or call Martyn Daniel directly at 425 398 5708.

Contact:  Martyn L. Daniel

19027 100th Ave NE
Bothell WA 98011
Phone: 425 398 5708

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Businesses, Eminent Domain, Property Owners, Public Agencies

Will My Business Have the Necessary Support to Plan My Eminent Domain Relocation?

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eminent domain moving van

 

 

When a business must relocate due to eminent domain, help from the agency is available but there are limitations to that assistance which business owners need to know.

When faced with eminent domain, an agent is assigned to each relocating business.

 

The agent’s services include:

  1. An explanation of eligible reimbursement categories for relocation costs
  2. Answering questions
  3. Obtaining moving bids
  4. Submitting relocation reimbursement claims

 

It is important to note that the agent is not required to plan for the move.  Planning the details of the move is the responsibility of the business owner.

And that can be a problem.

A business owner must maintain his business operations before the move occurs. It is important that the operation continues to produce goods and services to minimize unprofitable down-time. No business owner wants to lose much needed revenue before and during the relocation negotiation process. Employees and other operational expenses still need to be paid.

But the inevitable will occur…the business will need to relocate to make way for whatever improvement is to be in the space the business now occupies.

So planning a proper move is vital to a seamless relocation.

A business owner must find a new location for the business; however, other than providing real estate listings, the agent does not assist with this vital aspect of the eminent domain process.

One major obstacle that business owners face is that they are not typically versed in construction details.  A business owner may find a good location for the business but the building may not be turnkey.  If for example, machinery must be moved, special considerations must be made to ensure that the new location can house the machines.

How will a business owner know if the new site needs major upgrades to accommodate relocating machinery and/or office equipment?

Hiring an attorney will certainly help the business owner understand his legal rights but will these individuals have construction knowledge?  Will they know if a business owner needs additional plumbing to accommodate special equipment?  Will an attorney recognize that a relocating business owner has an opportunity to replace older equipment with updated equipment and can use relocation benefits to make this positive change?

An agent will submit a relocation claim to the agency for reimbursement but the business owner is responsible for recognizing the opportunity for any upgrades and must also plan for a seamless transition.

No two businesses are the same. Every business is unique so a ‘one size fits all’ approach to relocation will not work.  Unfortunately, the agent does not have the time to spend with each business owner to plan individual moves. But more importantly, it is not just about relocating from one space to another…it is about making the move to the new location better than the last.

Many relocating businesses often have the opportunity to make improvements that might have been planned on paper but never initiated at the original site due to lack of space, time or available funding. So relocating to a new site can often mean a fresh start and a chance to make key strategic improvements to the overall business plan.

But again, even improvement planning is the responsibility of the business owner.  The agent is only responsible for ensuring that the right-of-way is cleared and that the owner has the information available to act on the move.

In the case of the Trimet eminent domain case in Portland to make way for light rail, the agent ensures that each business owner receives an Acquisition and Relocation brochure. This is a rather informative document which offers an explanation of terms such as ‘valuation’, ‘just compensation’, and ‘condemnation’.  Again, the document is simply an explanation of what the business owner is required to know but it is a ‘one size fits all’ brochure. And because each business is unique in its service or product, its culture, its size, and its needs, a personalized review of every business is needed but not a requirement by the agent. (Incidentally, an agent may be assigned to more than one business.  If an owner has ever tried to reach other government agencies, such as the IRS for example, to ask questions, all any representative can really do is reiterate IRS rules and code.)

In some cases, if a relocation agent cannot respond to a business owner’s question, the agent has to take the owner’s question to the headquarters to further clarify the question.  For a busy owner trying to keep the business going before the relocation transpires, any time delays could have a negative impact on the operations.

If your business must be relocated due to eminent domain, think about the best use of your time as the business owner.  Will you have the support you need to make the best move possible for you and your business? Think about putting a team in place to help you find the best location for your business.

If you are faced with eminent domain, begin to plan early.  Draw up a list of locations you feel may be ideal for your business. Think about what you want to accomplish…do you want a larger facility or do you want to add a warehouse or a work area?  Will you have equipment which needs to be moved and will that equipment fit in the new location?

 

 

 

 

 

Eminent Domain

North Tarrant Express and Eminent Domain

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TxDOT’s filing of eminent domain on the North Tarrant Express may be the positive aspect this project needs for right of way acquisition. 

Eminent domain provides a set of rules that the property owners, tenants, and the public agency (TxDOT) have to follow. These rules make the acquisition process smoother and often more fair for the property owner and tenants.

Eminent domain regulations spell-out how fair market value is determined for the properties and what relocation benefits are available to the tenants.

Even with regulations in place, there can still be significant differences in the interpretation of these rules. Typically, these obstacles involve the disparity in property values and relocation costs.  However, eminent domain regulations are in place to help all parties involved to reach bilateral goals resulting in a quicker and fairer outcome.

Martyn Daniel has helped hundreds of businesses successfully relocate; often to more prosperous locations.  Martyn offers one-on-one consulting services, group workshops and online seminars for clients who need the relevant facts to make an educated decision. 

To schedule a free 15-minute no obligation call with Martyn, please click here for an appointment https://my.timedriver.com/F8VSS .

About Martyn, Businesses, Eminent Domain, Property Owners

Eminent Domain, Condemnation, Relocation, and Compensation Workshop

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Property and  Business Owners Learn About Eminent Domain

Businesses and property owners in Battle Ground, Washington facing eminent domain, condemnation, and relocation caused by a highway widening, are getting help by attending an Eminent Domain Workshop.

 Whether a business is relocating, or a property owner or business is reconfiguring their existing location, the best practices for getting compensation for their costs from the government agency are similar.  To cover both subjects, this workshop has been designed as follows:

 The goals of the workshop are to:

  1. Help participants prepare a plan that is best for them using the knowledge of what compensation, or benefits are, and are not, available to them from the public agency
  2. Improve what items and amounts will be paid to them from the public agency
  3. Minimize business downtime
  4. Minimize their time spent on the eminent domain process

 The  agenda for this three-hour workshop follows:

  • How to plan based on knowledge of which costs are eligible and ineligible for payment from the public agency
  • Learn the importance of staying within the eminent domain guidelines
  • How to avoid the pitfalls of common mistakes made in eminent domain
  • How to plan, prepare, and submit costs to improve the approval and compensation of costs from the public agency
  • How to plan to minimize downtime, and be paid, by the public agency for the extra costs related to minimizing downtime
  • Learn what to do, and not do yourself. When, where, and who to seek for assistance, and who will the public agency pay for assisting you
  • Questions and answers on your situation

 

Purpose of Workshop

The purpose of this workshop is to give these businesses and property owners a condensed education about the eminent domain process, more than would be received from other sources, so participants can make informed decisions.  The workshop will not cover all of the details and decisions that will face each individual, however, participants will receive valuable, relevant, and usable information that will improve their outcome with the eminent domain process well beyond the value of their time and cost of the workshop.

 An additional and important advantage for the workshop participants is they will begin networking together, which will help them compare notes during the eminent domain process, to help maintain consistent treatment.  This is helpful because, as much as they try, the public agency does not always treat everyone the same.  This particularly happens when the agency has several agents working on the project, agents are reassigned to other projects, or because the agents do not fully understand your needs or situation.

 Martyn guarantees each participant’s satisfaction of attending the workshop with a full refund at the end of the workshop to anyone not satisfied.

Are you and your neighbors facing eminent domain?

Improved Eminent domain success can be achieved by attending a workshop.   You can also participate in the design of a workshop for your group’s specific needs, location, and situation.  Businesses and property owners will be more successful with eminent domain when they begin planning early, before they loose their options and benefits while waiting.

Appraisers, Attorneys, Businesses, Eminent Domain, Property Owners

What is a 1031 or 1033 Tax Exchange?

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This tax expert’s article below provides a good distinction and clarification on how to handle tax issues related to real property situations.  It does not describe how to handle eminent domain relocation payments, where many of our clients have questions.  Relocation payments, within eminent domain and condemnation, are mostly related to personal property and other expenses for relocating a business or household.  We are continuing our search for answers to tax related questions on relocation payments.  Please check back with us.

I look forward to your return.

For Eminent domain relocation payments and taxes, please see our posting at

https://eminentdomainandbusinessrelocationconsulting.com/?p=1696

Regards,

Martyn

 

After years of conducting tens of thousands of successful 1031 exchanges, we found that there are a number of frequently asked questions related to this type of transaction…

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 depreciation which has been previously reported, then add the value of any improvements which have been made to the property. The resulting figure will reflect 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, the gain will be totally deferred if you:

1) Purchase a replacement property which is equal to or greater in value than the net selling price of your relinquished (exchange) property, and
2) Move all equity from one property to the other.

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 may not be 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 Exchangor 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 an exchange agreement will not qualify for deferred gain treatment. And 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, which could be easily disqualified.

Property Conversion

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 investment property could be converted, sold or transferred. Congress never adopted this proposal, so therefore no definitive holding period exists currently. However, this should not be interpreted as an unwritten approval to convert investment property at any time. Because the one-year period clearly reflects the intent of the IRS, most tax practitioners advise their clients to hold property at least one year 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.

Involuntary Conversion

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 within 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 will vary based upon 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 gain 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 which 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 gain 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.

Related Parties

May I exchange into a property that is being sold by a relative?

Yes. However, any exchange between related parties requires a two-year holding period for both parties.

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 exchanging within the scope of Section 1031. However, if your interest is not in the property but actually an interest in the partnership which owns the property, your exchange would not qualify. This is because partnership interests are excepted from Section 1031. But don’t be confused! If the entire partnership desired to stay together and exchange their property for a replacement, that would qualify.

Another caveat. Those individuals or groups owning partnership interests, who desire to complete an exchange and have for tax purposes made an election under IRC Section 761(a), can qualify for deferred gain treatment under Section 1031. This can be a tricky issue! See elsewhere in this publication for more information. Then, only undertake this election with proper tax counsel and only with the election by all partners!

Reverse Exchanges

Are reverse exchanges considered legal?

Although reverse exchanges were deliberately omitted from Section 1031, they can still be accomplished with the aid of an experienced intermediary. Since reverses are considered an aggressive form of exchanging, your intermediary and tax advisor should assist you with exchange and tax planning based upon successful reverse exchange case law.

The Taxation Section of the American Bar Association has submitted suggested guidelines for the IRS in evaluating reverse exchanges and issuing new regulations. Although it is unknown when the IRS will make a definitive reverse exchange ruling, one is expected in the future.

Identification

Why are the identification rules so time restrictive? Is there any flexibility within them?

The current identification rules represent a compromise which was proposed by the IRS and adopted in 1984. Prior to that time there were no time-related guidelines. The current 45-day provision was created to eliminate questions about the time period for identification and 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 200% rule?

Yes. Although you may identify any three properties of any value under the three property rule, when using the 200% rule there is a restriction. It is when identifying four or more properties, the total aggregate value of the properties identified must not exceed more than 200% 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 95% exception allows the identification of any number of properties, provided the total aggregate value of the properties acquired totals at least 95% of the properties identified.

Should identifications be made to the intermediary or to an attorney or escrow or title company?

Identifications may be made to any party listed above. However, many times the escrow holder is not equipped to receive your identification if they have not yet opened an escrow. Therefore it is easier and safer to identify through the intermediary, provided the identification is postmarked or received within the 45-day identification period.

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Disclaimer- Martyn L. Daniel represents both private parties and public agencies and provides these blog entries as a general overview on eminent domain related news.