Lately, the IRS has been trying to stop abusive basis shifting gains under partnership law. However, abusive basis shifting originated with section 1031.
Consider the following example. Let’s say that you have owned a business property in Roseville, MN for 40 years. Your basis is low but the value is high. On top of that, you recently built another business property in San Diego for the same price (but with a much higher basis). Now let’s say you swap these two business properties between your own wholly owned subsidiaries, effectively moving that high basis you have in the San Diego entity and flip-flop it so that it moves to the Minnesota property. When you ultimately sell that Minnesota property, now you’ve got a high basis and you have to pay a lot less tax. To stop that type of abusive basis shifting from occurring, section 1031(f) was introduced to the code.
One of the precepts for section 1031(f) is that if the motivation for doing the related party transaction is to avoid the imposition of the tax, then the exchange is invalid.
Get Your 1031 Exchange Moving Today
Get your 1031 exchange moving today by reaching out to a qualified intermediary who can help you navigate the like-kind exchange process. CPEC1031, LLC works with taxpayers throughout the United States on real estate exchanges under section 1031 of the Internal Revenue Code. These exchanges, when set up correctly, can allow you to defer 100% of your capital gains tax burden when you sell qualifying investment real estate. Contact the skilled intermediaries at CPEC1031, LLC today to learn more about our process and see how we can help you!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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