Commercial transactions are usually characterized by their complexity and uniqueness. No two commercial closings are the same. Our skilled and experienced closing team takes a pride in our ability of working through complexities, in our problem-solving skills and in our tenacious approach.
In addition to handling all title issues related to commercial property, as part of the Commercial Closing Services we handle 1031 Tax Exchange, 1099-S reporting and FIRPTA withholding.
Tax Deferred Exchange
Tax deferred exchange, often referred to as 1031 Exchange, helps investors to build wealth and to save on taxes. In 1031 Exchange, the investor can sell his investment property and purchase replacement investment property while maintaining his equity and deferring paying income tax on capital gains until future times when the investor decides to liquidate his assets. Section 1031 contains many requirements that must be met to defer the capital gain. Two of the most important rules to 1031 exchange are the following:
The Exchanger must acquire a “like-kind property”
The Exchanger cannot take “constructive receipt of funds” (receive proceeds)
There are strict time limits in which a tax deferred exchange must be completed with absolutely no extensions:
The Exchanger must identify a replacement property within 45 days and must complete the purchase within 180 days from the date of closing on the relinquished property.
The Internal Revenue Code requires that all proceeds from the sale or exchange of a real estate transaction be reported to the IRS. All real estate transfers are subject to 1099-S reporting, including commercial properties, regardless of whether or not there is any consideration paid for the property.
All sellers are subject to 1099-S reporting, including individuals, estates/trusts, partnerships, sole-proprietorships, and limited liability companies. Even foreign sellers are subject to 1099-S reporting, regardless of whether or not FIRPTA taxes are withheld and paid. Corporations are not subject to 1099-S reporting.
FIRPTA Withholding – Foreign Investment in Real Property Tax Act
Section 1445 of the Internal Revenue Code requires that the buyer must deduct and withhold a tax generally equal to 15% (or other amount) of the total sale price. Taxes and forms must be submitted to the IRS within 20 days of the transfer.
All real estate transactions/transfers, including exchanges, are subject to FIRPTA regulations; however, many commercial contracts contain provisions for the seller’s cooperation with FIRPTA compliance at closing.