The 1031 exchange route presents a feasible option to distressed commercial borrowers seeking a strategic exit from the liability with an eye to mitigating future tax liabilities.
(PRWEB) February 28, 2012
“Commercial real estate owners on the foreclosure track could potentially incur stiff tax liabilities in addition to the loss of their investment,” stated Kevin M. Levine, Executive Vice President of Peak 1031 Exchange, Inc. (http://www.peakexchange.com), a Qualified Intermediary, “unless they consider all the outcomes of relinquishing the asset. Commercial owners may have factored in all variables when exiting a commercial endeavor, but the IRS is the crippling ‘X’ factor that exponentially amplifies the loss of the asset.”
Relying on recent data estimating that approximately $360 billion in commercial debt will mature in 2012, Levine estimates that some owners will either not be able to restructure the debt sufficiently to retain the asset nor be able to work out a solution with the lender. “Because many of these loans are written as non-recourse loans protecting the borrower’s personal assets in the event of a default,” Levine continues, “borrowers don’t factor in the impact of the computed loss on the foreclosed commercial asset being classified for capital gains purposes. Most borrowers are unprepared for this. ” The IRS categorizes the loan amount deficiency --- that is, the remaining balance between the tax basis of the property in question and the balance of the unpaid loan --- as a realized gain for tax purposes.
While Levine admits that at some point capital gains taxes owed must be satisfied, exchanging the property in a 1031 exchange is not only inventive, but allowed under the current tax code to defer capital gains taxes. The 1031 exchange route presents a feasible option to distressed commercial borrowers seeking a strategic exit from the liability with an eye to mitigating future tax liabilities. In order for the exchange to a valid, however, the borrower must sign over the title to the 1031 exchange Qualified Intermediary before the property is sold at auction, and the interested buyer must be made aware that title is held by the Intermediary.
“The volatility of the past cycle is beginning to stabilize, revealing new opportunities for commercial real estate investors,” says Levine, “even in the arena of investors incurring a loss of equity or complete loss of asset. Minimizing or deferring any potential tax liability through the 1031 exchange process is one way of putting investors back on the road to recovery.”
Peak 1031 Exchange, Inc. is one of the entities in the Peak Corporate Network headquartered in Woodland Hills, California. In addition to commercial loan modifications, the Peak Corporate Network entities offer mortgage lending, loan servicing, short sale services, foreclosure services, real estate brokerage and escrow services. For more information, visit http://www.peakcorp.com.
The Peak Corporate Network is a brand that represents a group of related separate legal entities, each providing its unique set of real estate services.