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You are here: Home / Archives for commercial

Misconceptions 1031 exchange

November 20, 2020 by Randy Tibbetts

For 2020, here are our latest top 10 misconceptions we’ve found that the public has about 1031 Exchanges.

COVID-19 pandemic 1031 Extensions
Replacing Debt
The Term Like-Kind
Vacation and Second Homes Qualify
Reverse Exchange
Partial Exchange
Qualified Intermediary Advice
Identification Rules
Timing Deadlines
Loans, Equity & Tax Basis

COVID-19 Pandemic 1031 Extensions

IRS issued extensions that were granted for the 45 day Identification and 180 day exchange period for the COVID-19 pandemic are still in place
FALSE Misconceptions 1031 exchange
IRS extensions granted due to the COVID-19 pandemic ended July 15, 2020. Sign up here to be notified if the IRS grants further extensions. Be sure to check out our Coronavirus 1031 Resource page for the latest news.
Helpful link: Covid-19 1031 Exchange FAQs

Replacing Debt

You must replace the debt that you had on the Relinquished Property with at least the same amount of debt on the Replacement Property
FALSE Misconceptions 1031 exchange
Many taxpayers (and tax advisors) are under the misconception that the IRS mandates that they must have equal or greater debt on their 1031 Exchange Replacement Property (property they are purchasing). You do need to replace the VALUE of the debt paid off on the Relinquished Property. However, the debt does not have to be replaced with debt. The exchanger can always bring their own cash (from outside of the 1031 Exchange) to the closing table for the Replacement Property to offset any reduction in debt, or use other options.
Helpful link: See examples at Replacing debt in a 1031 Exchange

The Term Like-Kind

“Like-kind” is restricted to the same kind of real estate which means I must exchange the same type of property, for example, an apartment building for another apartment building
FALSE Misconceptions 1031 exchange
The term “like-kind” refers to the nature or character of the property, not its grade or quality. For this reason nearly all real property is like-kind to all real property, meaning that you can exchange an office building for an apartment complex, a strip mall, a warehouse, single family rental properties or even vacant land.
Helpful link: See what is qualified like-kind property?

Vacation and Second Homes Qualify

Vacation or second homes qualify for 1031 Exchange tax deferral
SOMETIMES
You can sell your investment real estate and reinvest the gain, tax deferred, to purchase your vacation or second home, however the challenge is making sure it will qualify as a 1031 investment property. Certain requirements must be met. Click the links below for details.
Helpful links: Do Vacation and Second Homes Qualify?
How to Buy Your Vacation Home with a 1031 Exchange
Strategically Buying Your Dream Vacation Home with a 1031 Exchange

Reverse Exchange

In a Reverse Exchange, it’s as simple as buying new 1031 Replacement Property first, as long as my Relinquished Property is sold within 180 days
FALSE Misconceptions 1031 exchange
In concept the Reverse Exchange is simple, but in execution, there are details and rules that must be followed. In a Reverse Exchange, you cannot own your Replacement and Relinquished Properties at the same time. Many do not realize that that title to their new Replacement Property must be “parked” with an EAT (Exchange Accommodations Titleholder) until their old Relinquished Property is sold. It takes considerable time to properly structure and execute a Reverse Exchange. Before you close on any property sale, reach out to IPX1031, your Qualified Intermediary, to ensure your 1031 Exchange is properly structured, timed and executed.

Partial Exchange

It’s not possible to do a partial 1031 Exchange
FALSE Misconceptions 1031 exchange
A 1031 Exchange does not need to be an all or nothing scenario. You can do a partial 1031 Exchange which qualifies for tax deferral under Section 1031 of the Tax Code. If you purchase property lower in value or take a portion of the cash from the closing of the sale and only invest a portion of your proceeds towards a 1031 Exchange, you will have a partially tax deferred transaction rather than deferring all of your taxes. You will pay taxes on those funds not reinvested (commonly referred to as boot).

Qualified Intermediary Advice

A Qualified Intermediary gives tax and legal advice as part of their role
FALSE
While a Qualified Intermediary (QI) like IPX1031 is generally needed to create the “exchange of properties” and safeguard the exchange funds, QIs cannot provide tax or legal advice. IPX1031 cannot act as your advisor to structure your exchange transaction. While IPX1031 provides tools like our Capital Gains Estimator, always talk to your legal and tax advisors to determine what is best for your individual situation.

Identification Rules

I can change my identification after day 45 if that property has been sold to someone else and if needed, I can buy other 1031 Replacement properties that I didn’t identify
FALSE
The 1031 ID rules are strict and very important. We’ve seen many exchanges fail due to exchangers not following these 1031 Exchange identification rules. From the day your Relinquished Property closes, you have 45 calendar days to identify potential replacement property using the 3 Property Rule (most common), 200% Rule or 95% exception. You can change your identification at any time prior to the expiration of the identification period. If you did not identify a property in the proper time period, that property does not qualify for 1031 treatment. In the case of an identified property no longer for sale, if you have no other identified property and it’s after day 45, your exchange will fail. Remember to start your search for identification property early – even before your Relinquished Property closes – so you have a head start in the identification process.

Timing Deadlines

I have 45 days to identify then an additional 180 days to close
FALSE
The 45 and 180 day periods are not separate time periods. All must happen within a total of 180 calendar days. From the time your Relinquish Property closes, you have 45 calendar days to identify your Replacement Property. Then you must buy and close on any identified Replacement Property(ies) that you want to purchase in your exchange within a total of 180 calendar days. Timing rules are strict and cannot be extended even if the 45th day or 180th day falls on a Saturday, Sunday or legal holiday. They may, however, be extended by up to 120 days if the Exchanger qualifies for a disaster extension under Rev. Proc. 2018-58.
Helpful link: Deadlines and Identification Requirements

Loans, Equity & Basis

Loan balance or equity increases tax basis in a 1031 Exchange
FALSE
The term “basis” is the cost of a property for tax purposes. When you sell a property, the difference between the sales price and the adjusted basis in the property will determine the amount of capital gain which is taxable. Loans or equity are typically not relevant and do not factor into basis.

Filed Under: commercial, Commercial Property, Commercial space Tagged With: 1031 exchange, False 1031 exchange, house swap, investment, real estate investing, tax saving

Commercial storage space MA

September 30, 2020 by Randy Tibbetts

Underground parking with over 4500 square feet of space. Indoor storage option. 20 parking spaces. Bring your needs and ideas. This commercial storage space is located at 1820 Turnpike St. in North Andover MA 01845.

This 4500 sq ft space would need to be leased out to one tenant as it would not be practical to divide the space into sections. Individual car storage is an option as well. Contact us today about this commercial storage space.

North Andover Storage Space Available

There is no one size fits all for business storage. The needs of a pharmaceutical rep are different than the needs of a law office. Their needs begin differently, and they develop differently, and it is important to make sure that you have a business storage solution that will recognize how your business is developing and takes the appropriate steps to help you grow. Underground storage at 1820 Turnpike Street North Andover can be your business storage solutions for businesses of all shapes and sizes and are here to help your business develop and grow the way that makes the most sense to you.

Commercial Storage Space MA

The average size of a storage facility in the U.S. is 46,000 square feet, and the average revenue per square foot, according to a 2008 report from the SSA, varies from $8.40 for a traditional facility to $11.07 for a Bix Box facility.

Storage for automobiles

Covered Car Storage
With a roof protecting your vehicle from the sun and other elements, covered car storage falls between indoor and outdoor storage. This option is more affordable than indoor storage and but also provides better protection against sun, snow, hail, and other elements that could damage your vehicle. If you don’t live in an area with harsh weather or strong storms, this is a great option for storing your car.

Storing a Car Over the Winter
Classic car and sports car owners often put their vehicles away into storage during the winter. A storage unit provides a safe storage environment for these cars during the off-season and means they won’t get in the way of vehicles that will be used during winter months.

 

Filed Under: commercial, Commercial Property, Commercial space Tagged With: 1820 Turnpike, car storage, special use, storage, underground parking

Force Majeure and How Does it Work?

July 27, 2020 by Randy Tibbetts

When an unexpected event interrupts business as usual, it is common to question whether or not that event will excuse parties from performing their contractual obligations. Many legal contracts, including real estate leases, attempt to address this issue with a “Force Majeure” clause, which outlines how these unexpected events are handled.

Given the sudden impact of the Covid-19 Pandemic, many commercial real estate professionals are trying to determine if it qualifies as a Force Majeure event. The answer to this question has significant financial consequences for landlords, small businesses, and insurance companies worldwide. In this article we will discuss force majeure in depth, and also review possible relief options.

What is Force Majeure?

Force Majeure is a Latin word meaning superior force. Within the context of a legal contract, a “Force Majeure” clause frees one or both parties from liability or obligation when an extraordinary event, such as war, strike, crime, or “Act of God” prevents one or more parties from fulfilling their obligations under the contract.

If such an event were to occur during the contractual term and a party invokes the Force Majeure clause as justification for their non-performance, there is a legal test to determine if their claim is valid.

Determining Force Majeure

Determining the validity of a Force Majeure claim can be difficult and subject to interpretation. When doing so, there are a series of general questions that a court or arbitrator may consider:

1. Was the event within the contemplation of the parties at the time the contract was made?

Often, the specific language of a Force Majeure clause lists a series of events that may excuse a party from performance under the terms of the contract. This can be seen in the sample clause below:

“Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefore, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform (collectively, a “Force Majeure”), shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.”

This is a clause from a commercial lease and, in plain language, it states that the tenant is excused from paying their rent in the case of “…strikes, lockouts, acts of God, etc.” and that they will continue to be excused for as long as the event lasts. So, the first criteria looks to see if the event is specifically described in the lease as a Force Majeure. Otherwise, it may not qualify or may be subject to interpretation under a broad description like “act of God.”

2. Is/was the event beyond the reasonable control of the affected party?

The next question seeks to determine if the event was beyond the control of the affected party. In their white paper on Force Majeure, the law firm DLA Piper states that “the phrase circumstances beyond the control of the person concerned” has not been subject to detailed examination by the courts. Instead, they assume that the phrase is given its everyday meaning.

They go on to state that “the phrase has been judicially held to refer to occurrences where neither the person concerned, nor any person acting on their behalf to do the act or take the step, could prevent.” So, when attempting to invoke the Force Majeure clause, this will be a major consideration.

3. Is/was the Affected Party’s ability to perform its obligations prevented by the event?

When determining the validity of a Force Majeure claim, a court or arbitrator will likely examine whether not the specific event impeded the affected party’s ability to perform under the contract.

For example, if an electronics manufacturer is unable to produce and sell their products as result of a labor strike, and thus can’t pay their rent, a reasonable argument may be made that their ability to perform under the lease was impacted by the event.

But, if the manufacturer failed to place an order with a key supplier and doesn’t have the raw materials to produce their product and tried to claim a Force Majeure, their argument isn’t nearly as strong.

4. Could the event have been reasonably foreseen by both parties?

Any court or arbitrator may study whether the claimed Force Majeure event could have been reasonably foreseen by both parties to the contract.

For example, if a company plans an outdoor music festival, but has to cancel at the last minute due to severe weather, it could be argued that this is an event that could have (and should have) been foreseen by both parties. As such, it may not be considered a Force Majeure event.

On the other hand, if the same concert is canceled due to an earthquake or labor strike, these events may not have been foreseen and may have a stronger argument as a Force Majeure event.

5. Did the affected party take all reasonable precautions to avoid the event or mitigate its consequences?

Finally, a court or arbitrator may look to see if the contracted parties took reasonable precautions to avoid or mitigate the event.

Using the same concert example above, it could be argued that the concert organizer should have taken steps to avoid the bad weather or had a contingency plan in place. If they didn’t, it could disqualify their Force Majeure claim.

If an event or circumstance is indeed declared to be a Force Majeure, there are two options for relief.

Force Majeure Relief Options

Contractual relief from a Force Majeure event typically takes one of two forms:

Temporary suspension of performance requirements under the contract, which lasts for as long as the duration of the event. For example, if there is a strike, the contractual obligations could be suspended for the duration of the strike and resume once it is resolved.
Cancellation of the contract. If the Force Majeure has an uncertain duration or the contract was for a one-time event, like a conference or festival, it could be canceled.
While these are common forms of relief, they may not be the only ones. The exact forms are outlined in the terms of each specific contract and may vary from one to another. As such, the Force Majeure section of a contract should be reviewed in detail.

Does Covid-19 Qualify As a Force Majeure Event?

As usual, the answer to this question will depend on the specific contract in question as well as the surrounding context. The devil is always in the details and contractual terms vary from one agreement to the next. Those questioning whether or not they are bound to certain contracts should: (1) read the terms of the contract to determine if some version of a pandemic is included in the Force Majeure contract language; and (2) consult a qualified real estate attorney for further legal advice.

Disclaimer: This article is for educational purposes only and is not to be construed as legal advice. A qualified real estate attorney should be consulted in the event of any questions or uncertainty.

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Filed Under: commercial, Real Estate Tagged With: commercial contracts, commercial leases, pandemic docs

Retail space leased to Dani Kaye in North Andover

September 5, 2017 by Randy Tibbetts

New space leased by Faulkner & Associates. I recently leased commercial retail space at 85 Main Street in North Andover to a dynamic duo! Jamie Sloan-McCarthy and Ryan McCarthy have transformed the former consignment shop on Main to an upscale trendy boutique that is simply the best in the Andovers!

Dani Kaye is a curated lifestyle store featuring women’s contemporary fashion, athletic wear, and fine gifts. We provide a comprehensive luxury styling experience that takes our clients from work to play. At Dani Kaye, we have over 10 years of experience in NYC luxury fashion to make shopping and styling effortless for busy women on the go. We are excited to open our store and be a part of the community in North Andover.

Fashion comes downtown: Dani Kaye is a new Main Street boutique for stylish women on the go

Dani Kaye 85 Main Street

Dani Kaye opened its doors August 24th and is getting favorable reviews.
.

Dani Kaye review 1

Dani Kaye review 2

Follow Dani Kaye on Facebook

Jaime Sloan
Owner at Dani Kaye
A 85 Main Street, North Andover, MA 01845
P (978) 341-4200 M (347) 819-4643 E jaime@danikaye.com W http://www.danikaye.com/

Ryan McCarthy
President, Lead Designer And Developer, Muse Intermedia
Phone: (917) 546-3044
Personal: (917) 633-4675
Mobile: (973) 568-5246
Email: rmccarthy@museintermedia.com
Website: www.museintermedia.com
Address: 4 High Street, Suite 218, North Andover, MA 01845

 

Filed Under: commercial, Real Estate Tagged With: North Andover commercial, North Andover Retail, Small business Andover, small businesses MA

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Randy Tibbetts

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617.233.2103 randy.tibbetts@tibbettsrealestate.com

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Randy Tibbetts is a real estate broker providing clients with professional residential & commercial real estate services in Massachusetts.

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Randy Tibbetts has been building relationships for 25 years while providing professional real estate services for clients who are searching for residential and commercial real estate in Massachusetts.

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