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Disaster Extensions and 1031 Exchanges

03/12/25

The deadlines imposed by IRC Section 1031 and the corresponding Regulations are static, with no ability for Exchangers to apply for ...

Authored by: meredithb@accruit.com

Authored on: Wed, 03/12/2025 - 20:12

1031 Exchange General

Large scale disasters caused by wildfires, tornadoes, tropical storms, flooding, and other natural events impacted Exchangers in more than two dozen states in 2024.1 For those impacted, various forms of assistance were available from a variety of government and non-government organizations including Federal Emergency Management Agency, Small Business Administration, United States Department of Agriculture, and others. The Internal Revenue Service provided relief by allowing those defined as “Affected Taxpayers” to deduct casualty losses and extend certain time sensitive deadlines. But how do declared disasters impact IRC Section 1031 Tax Deferred Exchanges specifically?

<h2 aria-level="2" paraeid="{09fccb70-d37c-4334-a95f-ca1fbacc24ac}{10}" paraid="623402506" role="heading">Section 1031 Background  </h2>

Under IRC Section 1031(a)(1), “no gain or loss is recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchange solely for property of like kind that is to be held for productive use in a trade or business or for investment.”  The Code section goes on to provide the Replacement Property is deemed to be not like-kind property if it is not identified on or before the 45th day after the transfer of the Relinquished Property, or if the property isn’t acquired by the earlier of (i) the 180th day after the transfer of the Relinquished Property, or (ii) the due date for the Taxpayer’s return for the tax year in which the transfer of the Relinquished Property occurs, including extensions.2

For example, in a forward exchange, if the Exchanger transferred the Relinquished Property on November 1, 2024, the 45-day identification deadline would be December 16, 2024, and the 180-day exchange deadline would be April 30, 2025. However, the Exchanger’s tax return deadline is April 15, 2025, which effectively shortens their exchange period unless they file Form 4868 to extend the deadline. Note, these deadlines and Form 4868 apply to individuals and married couples. Other deadlines and forms are to be used for other Exchangers including Farmers and Ranchers, Corporations, and Partnerships.

In a parking exchange, or “reverse” exchange/and or property improvement exchanges, the same calculations would apply. If, through a properly structured parking exchange, the exchange company, technically referred to as the Exchange Accommodation Titleholder, acquired the Exchanger’s Replacement Property on November 1, 2024, the Exchanger would have until December 16, 2024 to identify which property (or properties) in their existing portfolio would be the target for disposition, and until April 15, 2025 to complete that disposition (unless they file Form 4868 for an extension on their tax return).

<h2 paraeid="{09fccb70-d37c-4334-a95f-ca1fbacc24ac}{143}" paraid="730484418">IRS Disaster Extensions </h2>

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (“Stafford Act”) of 19883 amended the Disaster Relief Act of 1974. Section 401(a) of the Stafford Act provides that the Governor of an affected state must request that the President declare that a ‘major disaster’ exists. Major Disaster is defined as:

“any natural catastrophe (including any hurricane, tornado, storm, high water, wind-driven [sic] water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, or drought), or, regardless of cause, any fire, flood, or explosion, in any part of the United States, which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance under this Act to supplement the efforts and available resources of States, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby.”4

Further, the Secretary of the Treasury may extend certain time sensitive acts for up to one year for Exchangers affected by a federally declared natural disaster.5 Under IRC §7508A(d)(2), “Qualified Taxpayers” are

(A) Any individual whose principal residence (for purposes of section 1033(h)(4)) is located in a disaster area,

(B) Any taxpayer if the taxpayer’s principal place of business (other than the business of performing services as an employee) is located in a disaster area,

(C) Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a disaster area,

(D) Any taxpayer whose records necessary to meet a deadline for an act described in section 7508(a)(1) are maintained in a disaster area,

(E) Any individual visiting a disaster are who was killed or injured as a result of the disaster, and

(F) Solely with respect to a joint return, any spouse of an individual described in any preceding subparagraph of this paragraph.6

Exchangers may determine if an event was designated by the President as a federally declared disaster area by searching on <a href="https://www.fema.gov/disaster/declarations">FEMA's Disaster & Declarations page</a>. Many, but not all, of these disasters will also be posted to the <a href="www.irs.gov/newsroom/tax-relief-in-disaster-situations">IRS Newsroom</a>. FEMA can provide assistance in one of three forms – public assistance, individual assistance, or a combination of public and individual assistance. Public assistance is when FEMA provides grants to state and local governments for items like debris removal, repairing roads and bridges, public buildings, and public utilities. Compare this to individual assistance, which is when FEMA provides grants to individuals for items like temporary housing, housing repair and replacement, as well as funeral expenses, just to name a few.

When the President declares a federal disaster, FEMA will designate what counties, or parishes, are entitled to relief and what types of relief. This information is shared with the public and a map is generated to facilitate the sharing of this information. As an example, below is the map that was published in the wake of severe storms, straight-line winds, flooding and tornadoes affecting Kentucky in 2022.

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After the President declared that a major disaster existed in Kentucky, FEMA determined the geographical areas covered by the Declaration. Note that the map is color coded, and that there are five potential designations, by county. The counties indicated in white were not entitled to any FEMA relief. The counties highlighted in gold were entitled to public assistance only, and the counties in pink were entitled to receive both individual and public assistance. Only counties entitled to individual assistance, or public and individual assistance will receive disaster extensions.

<h2 paraeid="{3cd3a302-c902-4c1f-9df2-8f19e1687a61}{161}" paraid="661422050">Revenue Procedure 2018-58 </h2>

Revenue Procedure 2018-58 updates Revenue Procedure 2007-56 with the purpose of providing an updated list of time sensitive acts that may be postponed under Sections 7508 and 7508A of the IRC.

Further, Rev. Proc. 2007-56 and 2018-58 extend the definition of Affected Taxpayer to include individuals serving in the Armed Forces of the United States in a combat zone, or serving in support of such Armed Forces, individuals serving with respect to contingency operations, Affected Taxpayers by reason of federally declared disasters within the meaning of § 301.7508A-1(d)(1), or Taxpayers whom the IRS determines are affected by a terroristic7 or military action.8

The Revenue Procedures also include special rules for Section 1031 Like-Kind Exchanges.9 The last day of the 45-day identification period, the last day of the 180-day exchange period, and the last day of any deadlines set forth under Rev. Proc. 2000-37 for parking exchanges, specifically those “that fall on or after the date of a federally declared disaster, are postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later.”10

Affected Taxpayers who meet the terms of the Disaster Relief Notice must choose the relief provided in Section 6 or Section 17 of Rev. Proc. 2018-58. Section 6 applies only to Affected Taxpayers as defined in the Disaster Relief Notice and postpones deadlines falling between the Disaster Date in the Disaster Relief Notice and the last day of the Postponement Period to the last day of the Postponement Period.

Example A: Disaster Date is May 15, and the last day of the Postponement Period is September 15. The Taxpayer is an Affected Taxpayer as defined in the Disaster Relief Notice and disposes of their Relinquished Property on May 16 (after the Disaster Date), the 45th day is June 30, and the 180th day is November 12. Under Section 6, the ID deadline is postponed to September 15, the last day of the Postponement Period. The exchange period deadline is not postponed because it did not fall between the disaster date and the last day of the Postponement Period.

Section 17 applies to both Affected Taxpayers and Non-Affected Taxpayers who otherwise qualify for the disaster relief. It is important to note that for Section 17 to apply, the Relinquished Property must have been transferred (or the parked property must have been parked), on or before the Disaster Date. Section 17 permits both 1031 Exchange deadlines to be postponed for 120 days or until the last day of the Postponement Period, whichever is later. However, under no circumstances may the postponement go beyond (a) the due date, including extensions, of the Exchanger’s tax return for the year of the transfer, or (b) one year.11

Example B: Same basic facts as Example A. The Affected Taxpayer cannot benefit from Section 17 postponements because the transfer of the Relinquished Property occurred after the Disaster Date. This Taxpayer does not obtain the 120-day postponement.

Example C: Same basic facts as Example A, however, the Affected Taxpayer sold the Relinquished Property on May 1, before the May 15 Disaster Date, and has a 45-day deadline of June 15 and a 180-day deadline of October 28. If this Affected Taxpayer chooses Section 17 relief, then they may extend both their 45-day and 180-day deadlines by 120 days or until the last day of the Disaster Period, whichever is later.

<h2 paraeid="{4a5cebb6-66f3-4cea-976b-6ea74678d0b8}{82}" paraid="1656108362">How to Obtain Disaster Relief </h2>

For Exchangers located in the disaster area, the IRS maintains a list of the ZIP codes located within the disaster area and administratively tags the accounts of those Exchangers. The IRS automatically provides filing relief to these Exchangers, and they do not need to do anything further.

As discussed above, there are categories of Affected Taxpayer who are not physically located within the disaster area. Individuals who qualify for relief but who are not physically located within the disaster area must inform the IRS that they have been impacted by the disaster. These individuals must contact the IRS by calling 866-562-5227. It is important to remember that Affected Taxpayers also includes workers affiliated with recognized government of philanthropic agencies assisting the relief activities.

To qualify for an extension on 1031 Exchange deadlines, the Exchanger must qualify for relief under both the specific Disaster Relief Notice and the terms of Rev. Proc. 2018-58.12

Exchangers who believe that they may qualify for disaster related extensions on the 1031 Exchanges must consult with their tax and legal advisors. Upon determining that they qualify for such extensions, they must then promptly notify their Qualified Intermediary so that the Intermediary may properly notate the exchange files.

The material in this blog is presented for informational purposes only. The information presented is not intended as investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Sources:

1. Wildfires in California, Hawaii, and Washington. Tornadoes in Arkansas, Florida, Illinois, Iowa, Kentucky, Missouri, Mississippi, and West Virginia. Tropical storms in Florida, Louisiana, North Carolina, Pennsylvania, Puerto Rico, Tennessee, the U.S. Virgin Islands. Flooding in Alaska, Arizona, Arkansas, California, Connecticut, Illinois, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Missouri, New Mexico, New York, Rhode Island, South Dakota, Texas, and West Virginia.

2. IRC §1031(a)(3).

3. 42 USC 5121, et seq.

4. Strafford Act Section 102(2); 42 USC 5122.

5. 26 USC §7508A.

6. 26 USC §7508A(d)(2).

7. Notice 2023-71 provided relief to taxpayers who were unable to meet filing or payment deadlines due to the terrorist attacks in Israel in October 2023.

8. Rev. Proc. 2007-56, Section 3; Rev. Proc. 2018-58, Section 3.

9. Rev. Proc. 2007-56, Section 17; Rev. Proc. 2018-58, Section 17.

10. Rev. Proc. 2018-58, Section 17.02(1).

11. Rev. Proc. 2018-58, Section 17.02.

12. Rev. Proc. 2018-58, Section 17.02(2)(b)

Thu, 03/13/2025 - 15:11

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The Future of Sustainable Real Estate: Leveraging 1031 Exchanges for Green Investments

03/05/25

Buildings contribute to 37% of global CO2 emissions, driving the increasing need for sustainable real estate. With government incentives and growing ...

Authored by: meredithb@accruit.com

Authored on: Wed, 03/05/2025 - 08:00

1031 Exchange General

With buildings responsible for over 1/3 of global CO2 emissions, the shift toward sustainable real estate is growing. Government incentives, stricter regulations, and rising demand make green properties a smart investment. 1031 Exchanges offer investors a tax-efficient way to transition into eco-friendly properties or fund sustainability upgrades, aligning financial growth with green practices. In this blog, we explore key sustainability trends, investment opportunities, and how 1031 Exchanges can support the transition to green real estate.

<h2 aria-level="2" paraeid="{869bc1bd-09a7-435c-b5c0-a1efa8054ef9}{208}" paraid="978152938" role="heading">The Rise of Sustainable Buildings </h2>

Cities and companies around the world are setting strong carbon neutrality goals, driving innovation in sustainable building practices. The World Green Building Council estimates that green buildings can cut carbon emissions by up to 50% compared to traditional structures, and hundreds of cities globally have committed to achieving carbon neutrality by 2050. Additionally, green building certifications like LEED (Leadership in Energy and Environmental Design) and BREEAM (Building Research Establishment Environmental Assessment Method) are becoming more important to new construction projects, as organizations place greater emphasis on sustainable decisions.

<h3 paraeid="{869bc1bd-09a7-435c-b5c0-a1efa8054ef9}{226}" paraid="687398121">Investment Potential </h3>

Sustainable properties not only contribute positively to the environment, but also present significant investment opportunities. Opportunities include:

<h2 aria-level="2" paraeid="{f142a090-828f-4274-9454-561fc819b353}{24}" paraid="2004606052" role="heading">Government Regulations and Incentives  </h2>

In the United States, federal, state, and local governments actively promote sustainable real estate through various policies, regulations, and financial incentives designed to encourage green development.

<h3 aria-level="3" paraeid="{f142a090-828f-4274-9454-561fc819b353}{36}" paraid="2117959464" role="heading">Key Policies </h3>

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Stricter Building Codes: Regulations now require higher energy efficiency, water conservation, and use of sustainable materials in construction. For example, the International Green Construction Code (IgCC) provides a comprehensive approach to building design, construction, and operation, establishing mandatory green standards for buildings.  
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Carbon Emission Regulations and Incentives: Policies are being introduced that penalize high carbon emissions, encouraging businesses and builders to adopt greener practices. The Inflation Reduction Act (IRA) supports these efforts by offering tax credits and rebates to incentivize energy-efficient and renewable energy improvements.  
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<h3 aria-level="3" paraeid="{f142a090-828f-4274-9454-561fc819b353}{110}" paraid="1058735052" role="heading">Incentives for Builders and Buyers </h3>

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Financing: Green construction projects can benefit from financing options, making it easier to invest in sustainable building practices. Various programs are available to assist with energy-efficient purchases and improvements, such as green loans. Green loans are a dedicated type of financing designed for eco-friendly projects, such as solar loans, energy-efficiency loans, and green mortgages. They often require proof that the funds were used for sustainable projects and may offer lower interest rates to encourage sustainable practices.  
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These policies and incentives are designed to reduce the cost of adopting sustainable real estate, encouraging wider participation and fostering continued growth in the sector.

<h2 aria-level="2" paraeid="{f142a090-828f-4274-9454-561fc819b353}{178}" paraid="195947526" role="heading">Green Housing  </h2>

“Green housing” refers to homes built with energy-efficient resources and environmentally sustainable practices. The goal is to create homes that are not only environmentally responsible but also cost-effective, offering long-term financial benefits to homeowners.

<h4 aria-level="4" paraeid="{f142a090-828f-4274-9454-561fc819b353}{209}" paraid="245495189" role="heading">Key Benefits of Green Housing </h4>

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Sustainable Upgrades: Upgrades such as solar panels, energy-efficient appliances, and recycled materials make green homes both eco-friendly and more cost-effective for the tenants. In California, sustainability is further prioritized through the state’s solar mandate, which requires all new homes and low-rise multifamily properties to have solar panels installed during construction, ensuring that renewable energy is integrated from the start. 
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<h2 aria-level="2" paraeid="{f142a090-828f-4274-9454-561fc819b353}{240}" paraid="221894936" role="heading">Green Real Estate and 1031 Exchanges </h2>

Green real estate represents a shift in how properties are designed, renovated, and managed. As eco-friendly materials and energy-efficient technologies like solar panels and wind energy become more widely adopted, green properties are becoming highly desirable investments.

While tax incentives, such as the 30% federal tax credit for installing solar panels, don’t directly impact 1031 Exchanges, they can play a role in influencing investor decisions. Investors seeking to maximize returns on green properties can benefit from these incentives, as they help offset the costs of installing energy-efficient systems, making the property more financially viable. In some cases, tax credits and rebates can even improve ROI by reducing the upfront costs of making green upgrades and yielding higher rents from tenants.

For example, consider a residential property worth $270,000 generating $2,250/month in rent. Operating costs, such as maintenance and insurance, amount to 3.08% of the gross rental income. After accounting for these expenses, the property has an expected Net Operating Income (NOI) of 5.25%. Operating costs, such as maintenance and insurance, consume 3.08% of that income. If the investor decides to install solar panels at an estimated cost of $15,000, the total investment increases to $285,000. While rental rates might not immediately increase as a result of the solar installation, the 30% tax credit could offset up to $4,500 of the expense, significantly reducing the effective cost of the upgrade. Studies show that LEED-certified multifamily properties command a 9% rental premium, double that of non-certified properties. In the office sector, LEED-certified office buildings achieve an average rent 31% higher than non-certified buildings. For class A, green-certified office properties, there is an average 7.1% rental premium. Studies conducted across 20 major global office markets found that only 34% of the future demand for low-carbon workspace will be met in the coming years. In other words, for every 9 square feet of demand, only 3 square feet is currently in the pipeline. Over time, the combination of energy savings and increasing demand for sustainable properties could further enhance a property’s profitability.

<h3 aria-level="3" paraeid="{8e0a38bc-4b2f-4111-be6e-f02a50e0e8c9}{39}" paraid="2058142221" role="heading">Using 1031 Exchanges for Green Investments </h3>

A 1031 Exchange is a powerful tax-deferral strategy that allows real estate investors to reinvest proceeds from the sale of one property into another like-kind property, deferring associated taxes in the process. For investors focused on sustainability, this creates an opportunity to transition into green real estate without the immediate tax burden, while simultaneously benefiting from long-term energy savings and enhanced property value.

An <a href="https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… exchange</a> can also be valuable strategy, allowing investors to use a portion of their reinvestment funds to upgrade the Replacement Property(ies). If properly structured, sustainability improvements such as solar panel installations or water-saving fixtures can be included as part of the Replacement Property value. This means investors can reinvest in green real estate while still deferring taxes, effectively combining the benefits of both tax deferral and sustainable property improvements. Additionally, Exchangers installing solar panels as part of a 1031 Exchange can still take advantage of the 30% tax incentive, as this incentive is separate from the exchange and allows the Exchanger to deduct 30% of the cost from their Adjust Gross Income, regardless of the source of the funds.

By leveraging a 1031 Exchange for sustainability upgrades, investors not only maximize tax benefits, but enhance the long-term value and efficiency of their properties.

The future of real estate is going green. Sustainable building practices, government incentives, and growing investor interest are shaping the industry. While tax incentives for environmentally friendly building upgrades don’t directly affect 1031 Exchanges, they make green investments more attractive by reducing upfront costs. Investors seeking strong returns and sustainability should consider green properties, whether through upgrades, improvement exchanges, or utilizing incentives, ensuring both financial growth and positive environmental impact.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Sources:

<a href="https://theleadersglobe.com/article/green-homes-the-future-of-sustainab…; rel="noreferrer noopener" target="_blank">Green Homes: The Future of Sustainable Real Estate - The Leaders Globe Media</a>

<a href="https://www.gep.com/blog/strategy/green-real-estate-trends-for-construc…; rel="noreferrer noopener" target="_blank">Green Real Estate: The Key Sustainability Trends for 2025 | GEP Blog</a>

<a href="https://housivity.com/blog/sustainable-real-estate-innovations-regulati…; rel="noreferrer noopener" target="_blank">Sustainable Real Estate: Trends, Benefits, and Challenges | Housivity</a>

<a href="https://www.sciencedirect.com/science/article/pii/S0959652624033353" rel="noreferrer noopener" target="_blank">Sustainability reporting in construction and real estate sector: A conceptualization and a review of existing literature - ScienceDirect</a>

<a href="https://www.us.jll.com/en/trends-and-insights/research/the-commercial-c…; rel="noreferrer noopener" target="_blank">The commercial case for making buildings more sustainable</a>

<a href="https://insight.gbig.org/why-bother-with-certification-leed-certified-a…; rel="noreferrer noopener" target="_blank">Why Bother with Certification? LEED-Certified Apartments Earn Higher Rents :: GBIG Insight</a>

<a href="https://www.cbre.com/insights/viewpoints/green-is-good-the-endurance-of…; rel="noreferrer noopener" target="_blank">Green Is Good: The Enduring Rent Premium of LEED-Certified U.S. Office Buildings | CBRE</a>

<a href="https://axelradcapital.com/blog/green-loans-and-eco-friendly-lending/&q…; rel="noreferrer noopener" target="_blank">Green Loans and Eco-Friendly Lending | Axelrad Capital</a>

Wed, 03/05/2025 - 15:07

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Video: When Does a 1031 Exchange Start?

02/26/25

In this video, we explain that a 1031 Exchange officially begins when the benefits and burdens of ownership transfer from the ...

Authored by: meredithb@accruit.com

Authored on: Wed, 02/26/2025 - 08:00

When does a 1031 Exchange officially start? Some Exchangers believe it starts when the sale proceeds reach the Qualified Intermediary, but the IRS takes a different position. The exchange begins when the benefits and burdens of ownership transfer from the Seller to the Buyer.

In this video, we explain how this works using a real-world example. If a closing happens on a Friday at 5 PM and a fire breaks out the next day, whose insurance company would be responsible? The answer is the Buyer's insurance, because the transfer of ownership has already occurred. This is the point at which the 1031 Exchange starts and when the 180-day exchange period begins.

Understanding this timing is crucial for exchangers to meet IRS deadlines and stay compliant. Watch now to learn more.

Wed, 02/26/2025 - 15:01

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Understanding Easements: Types, Uses, and Benefits in 1031 Exchanges

02/20/25

Easements play a key role in land use, property management, and conservation by allowing property owners to grant rights for ...

Authored by: meredithb@accruit.com

Authored on: Thu, 02/20/2025 - 20:23

1031 Exchange General

Easements are generally legally binding agreements allowing property owners to grant specific rights for use of the land within the easement to third parties while retaining overall ownership of the land. Beyond their traditional uses, easements can be Relinquished or Replacement Property in 1031 Exchanges, enabling property owners to utilize the proceeds of the easement to reinvest into more productive like-kind property while deferring traditionally associated taxes with real estate transactions. This blog explores the general concept of easements, their various types and uses, and how they can be utilized in the context of 1031 Exchanges to maximize financial benefits and investment opportunities.

<h2 aria-level="2" paraeid="{c845841a-8ac4-4b07-92db-595360942fdc}{33}" paraid="2026096329" role="heading">What is an Easement? </h2>

An easement is a type of real property interest wherein a landowner grants another party specific rights to use the landowner’s real property for a designated purpose, typically in exchange for compensation. These agreements are often created to address needs such as providing access to land, facilitating the installation of utilities, or preserving the land for conservation purposes. For example, a utility easement allows utility companies to install and maintain infrastructure like electrical, water and gas lines. A conservation easement on the other hand, is created when a landowner restricts development on their land to protect natural or historical features. Easements can be either perpetual, lasting indefinitely, or for a fixed term, based on the easement agreement. As recognized real property interests, easements may be sold as part of 1031 Exchange transactions, allowing property owners to defer associated taxes while reinvesting in like-kind properties.

<h3 aria-level="3" paraeid="{c845841a-8ac4-4b07-92db-595360942fdc}{56}" paraid="1614257118" role="heading">Types of Easements </h3>

Easements serve various purposes and can assume different forms depending on the needs of the property owner and the rights granted. Below are examples of easements:

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Access Easements: Access easements grant specific rights to the grantee of an easement to use another landowner’s property for purposes like ingress and egress (access) to the property of the person acquiring the easement. Examples are creation of a common driveway, livestock driveways, access roads to irrigation ditches or canals or temporary access rights for construction, access to equipment, etc.  
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Utility Easements: Utility easements allow utility companies to install and maintain infrastructure such as power lines, water pipes, or telecommunication cables on private property. These easements are typically restricted to specific areas of the property and do not transfer ownership.  These easements may involve a small easement area to provide utilities to one parcel or huge multi-state utility transmission lines. 
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<li aria-setsize="-1" data-aria-level="1" data-aria-posinset="3" data-font="Symbol" data-leveltext="" data-list-defn-props="{"335552541":1,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"multilevel"}" data-listid="13" role="listitem">
Conservation Easements: Conservation easements are agreements designed to protect land for environmental, recreational, or historical purposes by restricting development or changes that could harm the land’s natural or cultural value. These easements are often used to preserve open spaces, natural habitat, protect endangered or threatened species, create greenbelts, or preserve historic structures. Unlike the other types of easements described herein, the grantor of a typical conservation easement is agreeing to restrict the use of their land. Typically, those purchasing conservation easements are government agencies or conservation organizations.  
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Ditch, Canal and Water Line Easements: These easements are created when a landowner grants a third party, sometimes a government entity, the right to construct, maintain and repair ditches, canals or waterlines across a landowner’s property to transport water for irrigation, domestic or municipal uses. These easements may also allow the easement owner to access water diversion structures. These easements may involve just one relatively small property parcel but can involve multiple landowners and large water conveyance systems  
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Gas and Oil Pipeline Easements: These easements typically involve large projects allowing for underground or above ground transport of oil and natural gas across multiple states and multiple landowners.   
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<a href="https://www.accruit.com/blog/cell-tower-billboard-1031-exchanges">Cell Tower, Billboard, Wind and Solar Easements</a>: These easements are created when landowners grant rights to others to build and maintain structures like cell towers, billboards, windmills and huge solar panel installations on a landowner’s property. These easements can be granted by private landowners or in some instances by governmental agencies. In some cases, these easements may include long-term lease agreements to the easement holder for the pads or area utilized by the structure, creating an additional revenue stream for the landowner. 
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<h3 aria-level="3" paraeid="{c845841a-8ac4-4b07-92db-595360942fdc}{156}" paraid="1095800225" role="heading">Terms of Easements </h3>

Easements can be structured with different durations, depending on the needs of the parties involved. The terms of an easement can significantly influence property management, income potential, and long-term planning. Easements are typically written agreements, there is an entire area of the law that deals with prescriptive easements, easements by necessity and the like. For purposes of this article, we will only address written, legally binding easement agreements.

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Perpetual Easement: A perpetual easement has no fixed end date and lasts indefinitely. These types of easements are often preferred because of their simplicity and long-term stability. They offer property owners a reliable and consistent income stream, making them especially beneficial in cases where ongoing access or preservation is required, such as with utility or conservation easements. In the 1031 Exchange context, perpetual easements are “like kind” to fee ownership of real estate and the proceeds from the sale of perpetual easements can be used to acquire any other real property interests meeting the like kind standard.  
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Fixed or Short-Term Easements: Easements that are less than perpetual can be of any length. Some easements may be temporary and very short term in the case of construction easements. Other easements can be of any stated term. The important feature of these less-than perpetual easements in the 1031 Exchange context is that they are not like kind to other fee interests in real property. However, a 1031 Exchange is still possible, as long as the proceeds from the sale of a fixed or short-term easement are used to exchange into another fixed or short-term easement
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<h2 aria-level="2" paraeid="{c845841a-8ac4-4b07-92db-595360942fdc}{240}" paraid="1288018149" role="heading">Ways Property Owners can Achieve Tax Benefits with Easements </h2>

<h3 paraeid="{c845841a-8ac4-4b07-92db-595360942fdc}{246}" paraid="1401384018">Donating an Easement</h3>

Donating a conservation easement allows property owners to restrict land use for preservation or conservation without transferring full ownership, offering significant tax benefits. These qualified conservation contributions, often used to protect open spaces, natural habitats, or historic structures, are donated to charitable organizations or government entities. The key to these transactions is that the property owner does not receive any monetary consideration for the easements, choosing instead to avail themselves of the charitable contribution tax deductions. The Exchanger should consult with their CPA or other advisors to determine the various deduction benefits available to them based upon the type of easement being granted.

In 2006, President Bush signed <a href="https://www.congress.gov/109/plaws/publ280/PLAW-109publ280.pdf">The Pension Protection Act</a>, the first substantial change to the conservation easement tax system in over two decades. Before the Act, Section 170(b) of the Internal Revenue Code imposed stricter limits on the deductibility of a qualified conservation easement. Individuals could typically deduct the value of a conservation easement donation up to 30% of their Adjusted Gross Income (AGI) for the year (50% for qualified farmers and ranchers), with any unused deductions eligible to be carried forward for an additional five years. The Pension Protection Act increased the tax incentives for easement donations, as it allowed individuals who donate an easement to deduct up to 50% of their AGI in a given tax year (100% for qualified farmers and ranchers), with any unused contributions eligible to be carried forward for up to 15 years. Donations of appreciated property remain the same, limited to 30% of income with a 5-year carryover.

Nine years later, the <a href="https://www.congress.gov/bill/114th-congress/senate-bill/330/text">Cons… Easement Incentive Act of 2015</a> was enacted, permanently amending the Internal Revenue Code to solidify the tax incentives introduced in the Pension Protection Act for charitable contributions of real property interests aimed at conservation purposes.

<h3 aria-level="3" paraeid="{a185d399-a9d4-4a6e-84f5-df1adcd3296e}{70}" paraid="884022242" role="heading">Conservation Easements as Relinquished Property in a 1031 Exchange </h3>

The conveyance, or sale, of a <a href="https://www.accruit.com/blog/video-considerations-easements-relinquishe… easement may be treated as a Relinquished Property in a 1031 Exchange</a>, allowing Exchangers to defer associated taxes by acquiring like-kind Replacement Property. To qualify under IRC Section 1031, an easement must represent a perpetual interest in the land and most conservation easements are structured in that fashion. Since payments for easements are typically made upfront, utilizing an easement sale as a relinquished real property interest aligns well with the 1031 Exchange process. Temporary easements do not meet the requirements set forth in the Section 1031 regulations

To execute a 1031 Exchange, the transaction must follow specific requirements. A Qualified Intermediary (QI), such as Accruit, must enter into an exchange agreement with the Taxpayer/Seller and manage the sale proceeds and acquisition of qualifying Replacement Property(ies) to ensure compliance with the tax code. Additionally, the transaction must be structured as an exchange rather than a straightforward sale. Improper structuring of the sale of a conservation easement can lead to unintended tax consequences.

<h2 aria-level="2" paraeid="{a185d399-a9d4-4a6e-84f5-df1adcd3296e}{149}" paraid="405070716" role="heading">Evolution of Conservation Easements for Tax Benefits </h2>

Conservation easement donations have been tax-deductible since 1976, when Congress established this incentive. Initially, the tax benefits were limited to deductions for conservation purposes, allowing landowners to donate easements to protect natural resources and claim charitable tax deductions. However, the initial activity in conservation easements was relatively slow because Taxpayers in the agriculture sector who were the natural source of conservation easements didn’t need or want charitable contributions due to harsh economic conditions; many of them were operating at a loss. The incentives for conservation easements changed dramatically when government agencies and conservation groups began offering substantial sums of money to property owners for conservation easements. Landowners now leverage easements not just for land preservation, but for reinvestment in more productive properties or other investment opportunities.

Donating an easement, while still an option, may no longer make as much sense for many property owners as it may have in the past. Charitable contributions of easements can yield tax deductions, but these benefits are typically capped by IRS limits on charitable contributions. However, some landowners are still motivated by a conservation ethic and not the money and the charitable contribution is sufficient incentive. In contrast, selling a conservation easement and redeploying the cash proceeds in an exchange can result in significantly greater financial diversification coupled with tax deferral. By choosing to sell rather than donate, property owners can better optimize the value of their real estate while still contributing to broader land-use or conservation goals.

Easements are more than just legal agreements. They are tools enabling property owners to optimize land use and reinvest proceeds from easement sales into other like-kind property. Whether preserving natural resources through conservation easements, enabling infrastructure development with utility and other energy related easements, or enhancing highway and road systems, easement sales offer significant flexibility and benefits to property owners, third parties involved, and the general public. By leveraging easements effectively, property owners can strike a balance between private rights and public interests while maximizing the value of their real estate assets.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Thu, 02/20/2025 - 21:00

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Video: 1031 Exchange into Improvements on Related Party Property

02/12/25

This video explores how a 1031 Exchange can be structured when making improvements on related party property while complying with IRC §1031 ...

Authored by: meredithb@accruit.com

Authored on: Wed, 02/12/2025 - 17:13

Navigating a 1031 Exchange in a low-inventory market or when lending costs are high can be challenging, especially for Exchangers looking to reinvest solely into property improvements. This video explores how a 1031 Exchange can be structured when making <a href="https://www.accruit.com/blog/can-taxpayer-use-exchange-proceeds-build-p… on related party property</a> while complying with IRC §1031 requirements.

A critical aspect of this process is ensuring that the <a href="https://www.accruit.com/blog/same-taxpayer-requirement-1031-tax-deferre… Taxpayer </a>owns both the Replacement Property and the ground lease while also transferring ownership of the Relinquished Property before the exchange begins. Since a long-term leasehold interest of 30 or more years is considered like-kind to a fee-simple interest, an Exchange Accommodation Titleholder (EAT) plays a vital role in holding the leasehold interest during the buildout and improvements. Ultimately, the Exchanger acquires the ground lease and tentative improvements from the accommodator.

The key takeaway is that a long-term leasehold interest of at least 30 years qualifies as like-kind to tentative improvements. If an Exchanger owns both the Relinquished and Replacement Properties, partnering with a 1031 Exchange expert like Accruit is essential to ensure the transaction is properly structured. In this video, we break down the process and key considerations to help Exchangers navigate this type of exchange successfully.

Thu, 02/13/2025 - 22:06

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1031 Exchange Investors: Commercial Real Estate Outlook for 2025

02/06/25

Heading into February 2025, the commercial real estate market is adapting to economic shifts, emerging technology, and changing demand. In this ...

Authored by: meredithb@accruit.com

Authored on: Thu, 02/06/2025 - 17:13

1031 Exchange General

As we start to settle into the new year, the commercial real estate (CRE) market continues to evolve in response to economic shifts, technological advancements, a new administration, and societal changes. In this blog, we look at key trends, top sectors to watch, and predictions shaping the commercial real estate outlook for 2025.

<h2 aria-level="2" paraeid="{9cd74b46-c7a4-4ee4-bce8-ed65452912ab}{220}" paraid="1247257517" role="heading">Economic Trends Impacting Commercial Real Estate </h2>

The CRE market is shaped by economic stability, interest rates, and inflation, key indicators that have historically been used to measure the strength of our economy. Over the past few years, the economy has faced significant challenges, with the lingering effects of the COVID-19 pandemic, disruptions in the supply chain, and historically high inflation peaking at 9.1% in 2022. These factors led to economic uncertainty, decreased business investment and consumer confidence. In response, the Federal Reserve (“the Fed”) aggressively raised interest rates to combat inflation, resulting in higher borrowing costs and reduced business and consumer spending. Now, as inflation begins to decline, cooling from its peak in 2022 down to 2.7%, the Fed has been gradually lowering interest rates, implementing a 0.25% cut in December 2024. This means that the Fed has reduced rates by a total of 1% since September 2024. Currently, the Fed's rate sits at 4.25-4.5%, and is expected to drop further to 3.75-4% by the end of 2025. These measures aim at stabilizing the economy, encouraging investment, and supporting growth among sectors such as commercial real estate.

<h3 aria-level="4" paraeid="{9cd74b46-c7a4-4ee4-bce8-ed65452912ab}{248}" paraid="793035301" role="heading">Key CRE Market Influences: </h3>

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Interest Rates: Lower rates could support higher property values and transaction volume by making financing more affordable. On the other hand, prolonged high rates, such as those seen in recent years, may suppress property values and transaction volume by making financing more expensive, limiting affordability, thus reducing demand. 
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What does this mean for the CRE market? Lower rates could make borrowing more affordable, fueling property acquisitions and new development. Meanwhile, economic growth remains strong, the S&P 500 gained 22.5% in 2024, house prices increased 6.8%, and real disposable income rose 3.1%. This is projected to aid in driving consumer spending growth of 2-4% in 2025, supporting continued strength in the CRE market.

<h2 aria-level="2" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{39}" paraid="247051021" role="heading">Top Sectors Poised for Growth in 2025 </h2>

<h3 aria-level="3" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{45}" paraid="615340811" role="heading">Office Space </h3>

The U.S. office market is showing signs of stabilization after years of volatility. In the third quarter of 2024, the national office vacancy rate held steady at 20.1%, with some suburban markets experiencing improving capitalization rates. However, regional disparities persist.

The hybrid work model has become a permanent fixture in the workforce, reshaping the demands for office space as companies prioritize flexibility and collaboration. Businesses are seeking amenity-rich environments that foster productivity and sustainability, driving demand for modern Class A office spaces. In contrast, older, less efficient buildings face ongoing challenges in attracting tenants.

The return-to-office (RTO) movement is a key factor in the projected rise in office space occupancy levels in 2025. Additionally, co-working and flexible office spaces are experiencing strong demand, reflecting the ongoing evolution of the office market.

<h4 aria-level="4" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{69}" paraid="2113707727" role="heading">Geographic Trends and Growth Opportunities </h4>

Looking ahead in 2025, the office sector is expected to strengthen, with continued demand for high-quality spaces in prime locations. Companies are increasingly investing in mixed-use environments with strong amenities to encourage in-person collaboration, while outdated office properties will continue to face difficulty. This presents a great opportunity for investors interested in acquiring an underperforming office property as part of a 1031 Exchange, specifically, an improvement exchange. <a href="https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… Exchanges</a> present a strategic opportunity for investors to modernize outdated office spaces by utilizing a portion of exchange funds into upgrades that could enhance efficiency and general market appeal, investors can better position their properties to meet the demands and expectations for office space in 2025.

<h3 aria-level="3" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{153}" paraid="331704520" role="heading">Industrial Real Estate </h3>

The industrial real estate sector continues to perform strongly in 2025, driven by sustained demand for e-commerce, manufacturing, and logistics facilities. The increasing expectation for same-day delivery is prompting companies to establish distribution centers closer to urban areas, while the expansion of online grocery shopping is fueling demand for cold storage. To enhance efficiency and reduce labor costs, warehouses are integrating robotics and automation, solidifying the sector’s position as a leader in innovation.

As the digital economy expands, the need for industrial properties, including trucking terminals, logistics centers, warehouses, storage facilities, and manufacturing plants, continues to grow. Consumers now expect rapid delivery of everything from household essentials to prepared meals, driving companies to invest in localized industrial real estate rather than relying solely on regional hubs. Investors and developers recognize that this trend will continue in 2025 and beyond.

<h4 aria-level="4" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{171}" paraid="545295352" role="heading">Market Trends and Growth Factors </h4>

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E-Commerce & Logistics: Online sales accounted for 23.2% of total retail sales (excluding auto and gas) in Q3 2024 and are projected to reach 25.0% by year-end 2025, sustaining high demand for fulfillment centers, distribution hubs, and last-mile facilities. Third-party logistics (3PL) providers are expected to be the leading source of new space absorption. 
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Digital Infrastructure: The rapid expansion of cloud computing, AI, 5G, and blockchain is driving historically high demand for data centers, server farms, and cell towers. Despite high construction costs and power limitations, demand is expected to outpace new development, keeping vacancy rates at record lows. 
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With e-commerce growth and technological advancements continuing to reshape supply chains, industrial real estate remains a critical sector. Developers and investors focused on logistics, cold storage, and digital infrastructure will be well-positioned for long-term success.

<h3 aria-level="3" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{227}" paraid="840949524" role="heading">Multifamily Rental Property </h3>

The multifamily rental sector is primed for continued growth in 2025 as rising home prices and mortgage rates push more individuals into the rental market. Demand remains strong across all segments, as homeownership becomes increasingly out of reach for many households. The growing popularity of Build-to-Rent (BTR) communities is further reshaping the rental landscape, offering an alternative to traditional homeownership for those seeking single-family living without the financial barriers of buying.

<h4 aria-level="4" paraeid="{0f12c8ef-0f61-4d36-a085-b1f0dbaf5f6a}{243}" paraid="228059814" role="heading">Market Trends & Projections </h4>

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Vacancy & Rent Growth: The national multifamily vacancy rate is expected to rise slightly, reaching 4.9% by the end of 2025, driven by the surge in new rental supply, including the growth of Build-to-Rent communities. While this increase in available units provides renters with more options, it may drive up vacancy rates. However, strong demand, fueled by population growth and affordability challenges in the for-sale housing market, is projected to sustain annual rent growth at around 2.6%. 
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<h4 aria-level="4" paraeid="{c07f4e5f-7ce7-445a-a5ae-334ab8077496}{34}" paraid="327562239" role="heading">Impact of Housing Affordability & Mortgage Rates </h4>

Persistently high home prices and mortgage rates are widening the cost gap between buying and renting, ensuring sustained demand for rental housing. As of Q3 2024, newly originated mortgage payments were 35% higher than the average apartment rent, making homeownership unattainable for many. While this premium is expected to decrease slightly to 32% by the end of 2025, it will still be enough to keep many renters in the market longer.

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Long-Term Rent Growth Outlook: Over the next five years, multifamily rents are projected to grow at an average annual rate of 3.1%, exceeding the pre-pandemic average of 2.7%. This trend will slightly narrow the gap between the cost of buying and renting, but renting will remain the more affordable option in most markets. 
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Regional Cost Disparities: High-cost cities like Austin and Los Angeles currently have some of the highest homeownership premiums, where buying is more than 2.5x the cost of renting. While this premium will shrink in the coming years, it will remain significantly higher than in other parts of the country. 
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By mid-2025, the initiation of new multifamily construction projects is expected to be 74% lower than its peak in 2021 and 30% below pre-pandemic levels, indicating a slowdown in new housing supply. As the flow of new development slows down, stronger rental demand will push vacancy rates lower and drive above-average rent growth into 2026. With economic factors keeping many households in the rental market longer, multifamily real estate will continue to be a resilient and attractive investment opportunity in the years ahead.

<h2 aria-level="2" paraeid="{c07f4e5f-7ce7-445a-a5ae-334ab8077496}{98}" paraid="1802789755" role="heading">Opportunities and Challenges for 1031 Exchange Investors </h2>

For investors conducting a 1031 Exchange, these economic trends influencing the CRE market present significant opportunities and challenges. Lower interest rates and continued growth in sectors such as industrial real estate, multifamily, and office spaces offer opportunities to acquire properties with strong cash flow potential. Those seeking to defer associated taxes while reinvesting in expanding sectors are expected to benefit from favorable market conditions.

However, with the slowing of multifamily construction and growing demand of rental property, the competition for quality rental properties may increase, potentially driving up prices. Investors aiming to utilize a 1031 Exchange may find it more challenging to identify suitable Replacement Property(ies) that meet the requirements of IRC §1031, especially as available inventory dwindles. In such cases, investors may need to explore alternative exchange structures, such as improvement or build-to-suit exchanges, which allow Exchangers to utilize exchange proceeds to the make necessary improvements or modifications in their Replacement Property(ies) to ensure that their property meets their investment needs.

Additionally, investors may dispose of underperforming assets through a 1031 Exchange and reinvest in high-growth sectors, positioning themselves for stronger returns. With the slowing of new office space development and shifting market demands, opportunities are emerging, particularly in suburban and flex spaces.  Investors can acquire older, outdated office buildings as their Replacement Property and conduct an improvement exchange to modernize and enhance their property, making them more competitive and desirable in this evolving market. By making improvements to meet tenant preferences of amenity-rich, high-quality spaces, investors can maximize property value and attract more demand. Understanding these market dynamics will allow investors utilizing 1031 Exchanges to make informed decisions, identify emerging opportunities, and ensure they’re maximizing the benefits of their exchange.

Economic trends are shaping the future of commercial real estate, creating both challenges and opportunities. As demand for high-quality spaces continues to grow, sectors like office, industrial, and multifamily real estate will thrive. Developers and investors who stay informed and adapt to shifts in the market will be well-positioned to capitalize on these evolving dynamics, ensuring long-term success in the ever-changing CRE market.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.

Sources

<a href="https://www2.deloitte.com/us/en/insights/industry/financial-services/co…; rel="noreferrer noopener" target="_blank">2025 commercial real estate outlook | Deloitte Insights</a>

<a href="https://money.usnews.com/investing/articles/the-commercial-real-estate-…; rel="noreferrer noopener" target="_blank">The Commercial Real Estate Outlook for 2025 | Investing | U.S. News</a>

<a href="https://www.jdsupra.com/legalnews/2025-commercial-real-estate-outlook-6…; rel="noreferrer noopener" target="_blank">2025 Commercial Real Estate Outlook: Projecting Where Rates Go | DarrowEverett LLP - JDSupra</a>

<a href="https://www.cbre.com/insights/books/us-real-estate-market-outlook-2025&…; rel="noreferrer noopener" target="_blank">U.S. Real Estate Market Outlook 2025 | CBRE</a>

<a href="https://www.worldpropertyjournal.com/real-estate-news/united-states/new…; rel="noreferrer noopener" target="_blank">U.S. Commercial Property Market Primed for Growth in 2025 - WORLD PROPERTY JOURNAL Global News Center</a>

Thu, 02/06/2025 - 17:44

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