Wednesday, March 28, 2012

I Would Like To Know More About 1031 Exchanges

I get a lot of questions about 1031 tax-deferred exchanges, so let's kick the topic around. It is covered under Section 1031 of the Internal Revenue Code. It is not tax-free but tax-deferred exchange. Properties that qualify would be "property held in a trade, business or investment". Examples would be land, commercial properties or rental properties. This might include your lake or beach property if guidelines are followed closely. Property that does not qualify would be your primary residence or inventory, like lots in a subdivision (if you were a developer).

Here are some of the advantages:
• Capital gains tax is deferred because your basis is carried forward in the replacement property.
• Taxed-locked property freed up, this might be property that you purchased many years ago with little basis. If property is sold, there might be a high capital gains.
• Money available for reinvestment instead of taxes

There are Four Rules to keep in mind:
1. Property must be held for investment or productive use in
trade or business.
2. Property must be exchanged for like-kind property.
3. Replacement properties must be identified within 45 days
after the relinquished property is transferred.
4. The exchange must be completed (replacement property
received) by the earlier of 180 days or the tax return due

For Information on Buying or Selling Land contact G. Kent Morris, ALC, RF at      (706) 457-0090

Thursday, March 1, 2012

I Would Like To Know More About Easements?

I love to talk about easements for several different reasons. They are so important and critical to land ownership. I had an employee who worked for me and his sole responsibility was to procure easements (access) into our property. I was managing 85,000 acres of land and some of it had no access. As a landowner you must know that the type of access affects value. Typically property along a public paved road will have more value than property accessed by an easement. Easements can impact what you can do with the property and can determine the ‘highest and best use’ and therefore value. There are other type easements beside those that involve access or roads. Let’s look at different type easements.
1. Easement in gross-  In this type of easement, only property is involved, and the rights of other owners are not considered. For example, a public utility line easement would be an easement in gross and would be recorded in the public records. If for any reason the title insurer fails to disclose a properly recorded easement in gross, and which then causes a problem later, then the title insurer must either pay you the diminished value of your property, or have the easement moved.
2. Easement appurtenant-  An example of an easement appurtenant would be an easement allowing you to drive over your neighbor's property to in order to reach your property. The easements ‘runs with the land’. An easement by necessity can be created for a landlocked parcel that has no public road access. To create an easement appurtenant by necessity, the owner of the landlocked parcel must be able to prove in court that there was common ownership with one of the joining parcels that has public access.
3. Prescriptive Easement- A prescriptive easement arises if someone uses part of your property without your permission. A prescriptive easement involves only the loss of use of part of a property, for example a pathway or driveway. Payment of property taxes is not required, as it is to obtain title by adverse possession. Adverse possession of a prescriptive easement involves the loss of an entire property by open, notorious, hostile adverse and continuous use. The legal test to acquire a prescriptive easement of another owner is that the use must be (a) open, not secret, (b) notorious, clearly observable, (c) hostile, without the landowner's consent and (c) continuous, without interruption for the number of years required by state law. For example, the minimum hostile use varies from 5 years in California to 30 years in Texas. The most common prescriptive easement arises when a fence is erected several feet on the wrong side of a boundary line. If the hostile user meets all the requirements, after the required number of years, a permanent prescriptive easement results for the strip of land. Prescriptive easements can be shared, that is, the hostile use need not be exclusive. Use can be shared with the legal owner and/or other hostile prescriptive claimants.
To perfect a legal prescriptive easement, the hostile user must bring a quiet title lawsuit against the property owner and prove all the open, notorious, hostile and continuous use requirements.

For Information on Buying or Selling Land contact G. Kent Morris, ALC, RF at      (706) 457-0090