Section 1031 Exchanges

An important aspect of our real estate transactional practice is to structure and implement like-kind exchanges under Section 1031 of the Internal Revenue Code. Such exchanges allow taxpayers to defer the capital gains that would have to be paid at the time of sale of property as long as the taxpayers reinvest the proceeds in similar or "like-kind" property. In recent years, a significant number of our real estate transactions have included deferred exchanges. In such transactions, our clients sell a property (usually real estate, but like-kind exchanges may be used for personal property) and park the proceeds of the sale with a third-party intermediary. The clients then identify a replacement property (or properties) within 45 days, and close on the replacement within 180 days. Most transactions are structured such that the relinquished property is sold first and a replacement property is purchased after, but we have also handled reverse exchanges on behalf of our clients. Recently, we completed a reverse exchange on behalf of one of our manufacturing clients that had outgrown its current facility and decided to build a state-of-the-art manufacturing facility in Oxford, Massachusetts. In this transaction, we counseled our client on the acquisition of the vacant parcel of land through a Section 1031 intermediary. The acquired parcel was "parked" with the 1031 intermediary while the new facility was built. Upon completion of the new facility, our client sold the relinquished property (its original headquarters) and acquired the new replacement property from the 1031 intermediary.

 

Representative Matters

• Represented a client in the sale of a Cambridge, Massachusetts, office building and the subsequent acquisition and financing of an office building in Florida pursuant to a Section 1031 exchange.
• Represented a client in the sale of property in a Section 1031 exchange and the purchase and financing of replacement commercial properties in New Hampshire, Massachusetts, and Florida.
• Represented a client in a 1031 exchange relative to the sale of a $10.6 million office building in the Boston metropolitan area.
• Represented a client in a 1031 exchange in which it purchased New Hampshire property for a manufacturing facility. We negotiated both purchase and sale agreements, negotiated sale-leaseback documents for the relinquished property, obtained local subdivision and other permits, and negotiated the construction contract.