For assets in these categories, depreciation recapture is taxed when an asset is sold but the use of one or more §1031 exchanges will defer the tax and move the (depreciated) basis forward to the new asset(s).
The timing of asset purchases (heavy equipment, for example) is usually driven by business events such as a new project or the availability of an asset at favorable terms from a dealer or at auction. Being under pressure to identify or buy assets because of the deadlines in a forward exchange (45 days for identification and 180 days to purchase) is almost certainly counter-productive and diminishes the value of the tax deferral available from your §1031 strategy.
In a reverse exchange, the 180 day exchange period starts when an asset is acquired and the 45-day identification deadline is satisfied with assets that you already own and which you know will be sold in the ensuing 180 days.
ExStra provides process for both low-volume and high-volume reverse exchanges of these types of assets. For low-volume strategies, we will establish EAT structures that can reduce cost and streamline parking arrangements while enhancing asset security and insulation. The high-volume programs employ structures specified by the IRS in Rev. Proc. 2000-37 as well as Rev. Proc 2003-39. These programs will have significant advantages when the number of similar assets involved in a strategy exceeds 100 over a reasonable period of time. They are designed to avoid the accumulation of cash and to have minimal transactional overhead for individual assets or groups of assets being bought or sold. Click here for more.
Many current users of high-volume exchange programs would find the use of a reverse exchange program advantageous due to the absence of "trapped cash", the simplification of the required accounting structures and the increased tax deferral potential due to the differences in the way the exchange deadlines are met. Please call us to discuss further.