New episode of Central Illinois Business - September 26

New episode of Central Illinois Business - September 26 - Featuring Leon Odendaal and Ron Bailey

The Second Annual Innovators Improv at Krannert Center

Last Thursday I was priveledged to be invited to the second annual INNOVATOR"S IMPROV held at Krannert Center at the University of Illinois. The event was sponsored by the Academy of Entrepreneurship from the School of Business. Dr. John Clarke is the Director. It was quite the event. The idea was to have a open forum where people can share their thoughts about business ideas, strategies and synergies. Dr. Clarke had sevral planned speakers of which I was pleased to me one but more importantly the stage was open to the students and others to speak extenporaneously. I feel that we have a vast anount of brain power in the minds of those students. Some of the ideas seemed very poerful and some silly, but the point was that people were talking. How many businesses today sounded completely rediculous to us all just a few years ago. Think E-Bay or Amozon.com!! I want to applaude Dr. John Clarke and his group for all their great work!

We are getting ready to start the TV show on channel 3 WCIA

We are getting ready to start the TV show on channel 3 WCIA. So far I have recorded three interviews. Dr. Rick Workman, Keith Summers and Mike Yager. Dr. Workman began his career as a dentist in Effingham, but has built an amazing business based on very fundemental principals of helping new dentists get started in business. He currently has over 320 dentists in his organization and has over 250 dental offices through out the country. His interview will be aired on Oct 4th at 10:00a on channel 3 of course. Watch it! He is an exceptional businessman. You will get a lot out of that show. Mike Yager began his business when as a young man he borrowed $500.00 to purchase some patches and T-shirts which he had planned to sell at a Corvette car show. The rest as they say is history. Today Mike is the largest supplier of Corvette and Volkswagon accessories and supplies. He employs a couple of hundred people and just opened his first office in China. I really enjoy Mike's contagious attitude. He really lights up a room with his smile. The thing is this guy is for real. Its not hype. He carries his passion with him and he loves his business as much as he loves life! I get a kick out of that. My interview with Keith Summers was special because he didn't want to tell his story as much as he wanted to tell the story of his parents KC and Pauline Summers. Watch it! You will enjoy the history told inherent in the story of an American family and their ties to America's auto industry. I have a lot of really good stuff coming up with interviews by very interesting entrepreneurs, inovators, inventors and the like. I learn form them all and I will share anything that I learn from them with you!

Communications Media Style

This is Alex Ruggieri. As some of you know I do a radio show on entrepreneurship on WDWS Newstalk 1400 AM. The show normally airs on Saturdays at 11:00a and then is repeated on Sunday at 12:00a. Sometimes they move my show around to accommodate football but generally that's when you will find it on the dial. Any way I thought that it might be fun to blog a little about the folks that I have on the show form time to time. This week I have two interesting guests. The first is a gentleman by the name of Leon Odendaal. He is from South Africa. He wanted to move his family to America and found that if you purchased a business in the states it is way easier to immigrate than to put ones hat in the ring to win the green card lottery. Anyway I think that you will enjoy his story. It says a lot about how America is viewed in the world by real people and I think it is very complimentary to our community that he and his family chose to locate here. The company he purchased is PDQ printing on North Lincoln Ave. I also interviewed Ron Bailey. Ron has been a friend of mine since the old days when I attended BNI. He is just a great individual and runs a very solid business called the Blossom Basket. He has two locations. The original store on Vine in Urbana and the new retail store located at Robeson Crossing in Champaign. I think you will get a lot out of the interviews from both of these exceptional people. I hope you enjoy listening to them as much as I enjoyed the interviews. Also we are starting a new TV show on business leadership on Channel 3 More to come....

New episode of Central Illinois Business - September 19

New episode of Central Illinois Business featuring Dr. John Clarke, Liezl Bowman, & Leslie Cooperband

Click here to listen!

Income Tax Strategies for Real Property (Part 3)

By William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC

This is our third article in a series on Income Tax Strategies for Real Property. The first article summarized the various tax deferred and tax exclusion strategies available to you when disposing of real estate and the second article went into greater detail on the 1033 Exchange or Involuntary Conversion.

This article will explore the 1034 Exchange, which was repealed in 1997, and the 121 Exclusion, which replaced the 1034 Exchange.

The 1034 Exchange and the 121 Exclusion generally apply only to the sale, disposition or exchange of a primary residence. However, there are some great income tax strategies available by combining a 121 Exclusion with a 1031 Exchange.

Build and Maintain Wealth by Deferring Taxes
The ability to defer or exclude the payment of your taxes means that you can keep 100% of your equity (cash) working for you instead of paying it to the Federal and state governments.

This ability to keep your equity working for you by deferring your taxes is a critical component in any wealth building strategy, and makes a huge difference in the long run. It not only helps you build and accumulate wealth, but it also helps you maintain wealth.

1033 Exchanges (Involuntary Conversions)
This article addresses the basic planning issues involved with structuring and completing a 1033 exchange. The majority of advisors do not understand the nuances involved in a 1033 exchange, and there is very little guidance available, because 1033 exchanges are just not that common. However, we are beginning to see more and more of them.

Section 1033 of the Internal Revenue Code (“IRC”) applies to the disposition of real estate when the real property is the subject of an involuntary conversion. This type of tax deferred exchange is generally referred to as a 1033 exchange.

An involuntary conversion refers to the fact that the investor’s real property was taken from them or destroyed against their will either through an Eminent Domain proceeding (condemnation by the government) or a property loss due to a natural disaster such as an earthquake, hurricane, fire or flood, just to name a few.

Generally, the payments received from the government agency due to an Eminent Domain proceeding or the proceeds received from an insurance company due to a loss stemming from a natural disaster result in a taxable event of some type unless the transaction is structured correctly as a 1033 exchange.

Although it is never fun to go through an involuntary conversion, the 1033 exchange can provide the investor with some really nice tax planning opportunities, and, even though painful, can be a more favorable tax-deferred strategy than the 1031 exchange.

Opportunities Afforded by the 1033 Exchange
Here is a quick and concise overview of the 1033 exchange. It should be noted that although there are some similarities to the 1031 exchange and advisors frequently get the two confused, the 1033 exchange is quite different in its structuring and provides some great tax planning opportunities.

Holding Proceeds
There is absolutely no requirement to have the investor’s proceeds held by an independent third party such as a Qualified Intermediary like there is with the 1031 exchange.

The investor can receive, hold and use the proceeds received through a 1033 exchange with absolutely no tax consequences to the investor. This would be disastrous in a 1031 exchange, but not in a 1033 exchange.

Qualification
The investor will qualify for 1033 exchange treatment if the property is taken or destroyed, but he or she will also qualify if they have merely been threatened with an eminent domain proceeding. The investor would only have to prove that he or she was threatened in order to qualify for tax deferred treatment under Section 1033. It has to be an actual threat of an eminent domain action, and not just a hint or offer, but an actual threat that if the investor fails to sell the property to the government agency they will proceed with an eminent domain action.

Cashing Out
My favorite tax planning opportunity with a 1033 exchange is the ability to pull some or all of the cash equity out of the transaction without paying any taxes what-so-ever. Investors can actually pull cash out through the 1033 exchange. The proceeds do not have to be reinvested like they do in a 1031 exchange. Pulling cash out of a 1031 exchange will result in taxable boot, but not in a 1033 exchange. It’s a great way to free up trapped proceeds without having to pay taxes.

Trade Equal or Up in Value
The only reinvestment requirement is that the investor acquires replacement property or properties that have a fair market value equal to or greater than the property taken or lost through the involuntary conversion. It’s what we call trading equal or up in value. You can trade down and recognize some tax, which is referred to as a partial 1033 exchange.

Investors that have lost property through an eminent domain action will acquire other replacement property. Investors that have lost property to a natural disaster will generally structure a 1033 exchange by rebuilding the destroyed property, but could also reinvest by acquiring other replacement properties, too.

Like Kind Property
The definition of like-kind property under an eminent domain proceeding is essentially the same as under a 1031 exchange. The definition of like kind is a “similar or related in service or use” standard when involved with a natural disaster involuntary conversion.

Deadlines
The 1033 exchange also allows substantially more time to reinvest the proceeds into replacement properties. Investors generally have two (2) years under a natural disaster; three (3) years under an eminent domain proceeding; and four (4) years if it is their primary residence regardless of whether it was a natural disaster or eminent domain proceeding.

And, there you have it. A quick run down of the 1033 exchange.

Our next article will address the 1034 Exchange (repealed in 1997), which was replaced with the 121 exclusion. These tax codes generally apply to the sale of a primary residence, but there are some great tax planning opportunities available and there have been some recent changes that were contained in the 2008 Tax Act. Stay tuned...

Income Tax Strategies for Real Property (Part 2)

By William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC

This is my second article in a series of articles on Income Tax Strategies for Real Property. My first article provided a summary of the various tax deferred and tax exclusion strategies available to you when disposing of real estate.

My next few articles will delve deeper into the various tax strategies covered in my first article. I will then focus quite a bit of attention on the 1031 exchange, which is generally the better tax deferral solution in most situations. However, it is still important to be aware of the other tax deferred and tax exclusion solutions that are available in case your situation warrants another approach.

We also need to spend time discussing the various types of taxes that you might encounter when you dispose of real property. The taxes will depend on a number of things, but can include ordinary income taxes, depreciation recapture taxes, and capital gain taxes. I will explore these issues in much greater detail in a future article, so stay tuned.

Build and Maintain Wealth by Deferring Taxes
The ability to defer or exclude the payment of your taxes means that you can keep 100% of your equity (cash) working for you instead of paying it to the Federal and state governments.

This ability to keep your equity working for you by deferring your taxes is a critical component in any wealth building strategy, and makes a huge difference in the long run. It not only helps you build and accumulate wealth, but it also helps you maintain wealth.

1033 Exchanges (Involuntary Conversions)
This article addresses the basic planning issues involved with structuring and completing a 1033 exchange. The majority of advisors do not understand the nuances involved in a 1033 exchange, and there is very little guidance available, because 1033 exchanges are just not that common. However, we are beginning to see more and more of them.

Section 1033 of the Internal Revenue Code (“IRC”) applies to the disposition of real estate when the real property is the subject of an involuntary conversion. This type of tax deferred exchange is generally referred to as a 1033 exchange.

An involuntary conversion refers to the fact that the investor’s real property was taken from them or destroyed against their will either through an Eminent Domain proceeding (condemnation by the government) or a property loss due to a natural disaster such as an earthquake, hurricane, fire or flood, just to name a few.

Generally, the payments received from the government agency due to an Eminent Domain proceeding or the proceeds received from an insurance company due to a loss stemming from a natural disaster result in a taxable event of some type unless the transaction is structured correctly as a 1033 exchange.

Although it is never fun to go through an involuntary conversion, the 1033 exchange can provide the investor with some really nice tax planning opportunities, and, even though painful, can be a more favorable tax-deferred strategy than the 1031 exchange.

Opportunities Afforded by the 1033 Exchange
Here is a quick and concise overview of the 1033 exchange. It should be noted that although there are some similarities to the 1031 exchange and advisors frequently get the two confused, the 1033 exchange is quite different in its structuring and provides some great tax planning opportunities.

Holding Proceeds
There is absolutely no requirement to have the investor’s proceeds held by an independent third party such as a Qualified Intermediary like there is with the 1031 exchange.

The investor can receive, hold and use the proceeds received through a 1033 exchange with absolutely no tax consequences to the investor. This would be disastrous in a 1031 exchange, but not in a 1033 exchange.

Qualification
The investor will qualify for 1033 exchange treatment if the property is taken or destroyed, but he or she will also qualify if they have merely been threatened with an eminent domain proceeding. The investor would only have to prove that he or she was threatened in order to qualify for tax deferred treatment under Section 1033. It has to be an actual threat of an eminent domain action, and not just a hint or offer, but an actual threat that if the investor fails to sell the property to the government agency they will proceed with an eminent domain action.

Cashing Out
My favorite tax planning opportunity with a 1033 exchange is the ability to pull some or all of the cash equity out of the transaction without paying any taxes what-so-ever. Investors can actually pull cash out through the 1033 exchange. The proceeds do not have to be reinvested like they do in a 1031 exchange. Pulling cash out of a 1031 exchange will result in taxable boot, but not in a 1033 exchange. It’s a great way to free up trapped proceeds without having to pay taxes.

Trade Equal or Up in Value
The only reinvestment requirement is that the investor acquires replacement property or properties that have a fair market value equal to or greater than the property taken or lost through the involuntary conversion. It’s what we call trading equal or up in value. You can trade down and recognize some tax, which is referred to as a partial 1033 exchange.

Investors that have lost property through an eminent domain action will acquire other replacement property. Investors that have lost property to a natural disaster will generally structure a 1033 exchange by rebuilding the destroyed property, but could also reinvest by acquiring other replacement properties, too.

Like Kind Property
The definition of like-kind property under an eminent domain proceeding is essentially the same as under a 1031 exchange. The definition of like kind is a “similar or related in service or use” standard when involved with a natural disaster involuntary conversion.

Deadlines
The 1033 exchange also allows substantially more time to reinvest the proceeds into replacement properties. Investors generally have two (2) years under a natural disaster; three (3) years under an eminent domain proceeding; and four (4) years if it is their primary residence regardless of whether it was a natural disaster or eminent domain proceeding.

And, there you have it. A quick run down of the 1033 exchange.

Our next article will address the 1034 Exchange (repealed in 1997), which was replaced with the 121 exclusion. These tax codes generally apply to the sale of a primary residence, but there are some great tax planning opportunities available and there have been some recent changes that were contained in the 2008 Tax Act. Stay tuned...

Income Tax Strategies for Real Property (Part 1)

By William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC

The sale of real property, whether it’s commercial or investment real estate or your primary residence or a vacation home, generally means that you will realize ordinary income, depreciation recapture and/or capital gain taxes.

Tax deferral and exclusion strategies can easily and effectively help you reposition your real estate portfolio in order to accomplish any number of investment objectives while deferring or excluding income taxes.

It is important for you to be familiar with the various tax deferral and tax exclusion strategies that are available to you. And, you should always consult with your legal, tax and financial advisors to ensure you select the most appropriate income tax strategy under your circumstances.

This article is the first in a series of articles on Income Tax Strategies for Real Property, and will introduce you to the various strategies available to you when selling real property. We will delve into greater detail on these strategies throughout this series.

Here is a brief summary of some of the Income Tax Strategies for Real Property:

1031 Exchange (Investment Property)
Section 1031 of the Internal Revenue Code allows you to exchange real or personal property that was held for rental or investment purposes, or that was used in your trade or business (relinquished property), for like-kind real or personal property that will be held for rental or investment purposes, or that will be used in your trade or business (replacement property), so that you can defer your capital gain and depreciation recapture income tax liabilities.

1033 Exchange (Involuntary Conversion)
Section 1033 of the Internal Revenue Code provides that real or personal property subject to an involuntary conversion, either from an Eminent Domain proceeding (condemnation by the government) or destruction by a natural disaster, such as an earthquake, hurricane or fire, can be exchanged on a tax-deferred basis for like-kind real or personal property that is similar or related in service or use.

1034 Exchange (Repealed in 1997)
Section 1034 of the Internal Revenue Code was repealed and replaced by Section 121 (see following) in 1997. The 1034 exchange allowed you to sell your primary residence and defer or roll over your capital gain by acquiring another primary residence of equal or greater value.

121 Exclusion (Primary Residence)
The Taxpayer Relief Act of 1997 repealed and replaced the tax deferral rollover provisions of Section 1034 with the tax-free exclusion provision under Section 121 of the Internal Revenue Code. Generally, you can sell your primary residence and exclude from gross income up to $250,000 in capital gains ($250,000 per taxpayer, $500,000 for a married couple). You must have owned and lived in the property as your primary residence for at least 24 of the last 60 months.

453 Installment Sale Treatment (Seller Carry Back Note)
Section 453 of the Internal Revenue Code allows you to sell real property and help your buyer finance the purchase of your property by carrying back an installment note (seller carry-back financing) while deferring the recognition and payment of your capital gain income tax liability until you receive principal payments. Depreciation recapture income tax liabilities can not be deferred under Section 453 and are due and payable in the year in which you sold your relinquished property. You can also accomplish this through a Deferred Sales Trust™.

721 Exchange (upREIT or 1031/721)
Section 721 of the Internal Revenue Code allows you to exchange investment real estate for an interest in a Real Estate Investment Trust (REIT). This is also referred to as an upREIT, or 1031/721 exchange.

The majority of investors will end up using the 1031 exchange to defer the payment of their capital gain and depreciation recapture taxes upon the sale of relinquished property and the subsequent acquisition of replacement property, so our series on Income Tax Strategies for Real Property will spend quite a bit of time discussing the 1031 exchange.

New episodes of Central Illinois Business with Alex Ruggieri!

You can find both of the new episodes of Central Illinois Business at http://www.ruggieriteam.com/radio

• August 29, 2009: Matt Hutton & David Ikenberry
• August 22, 2009: Dr. John Clarke & Melia Smith