treatment of state tax issues
Knowing that all of the reverse exchange forms that we offer effectively defer the payment of federal capital gains taxes, the issue of state taxation is the next issue of consequence. While federal tax deferment is constant for all exchangors, state taxation issues differ widely and can become very complex, especially if properties in multiple states are involved or if the Exchangor lives in a state other than the one in which properties are transacted.
Furthermore, the Accommodator executing reverse exchanges must follow certain rules that pertain to it and those rules can change from state to state. It is crucial that Accommodators meet their legal obligations in each state in order for Exchangors to know with confidence that their exchange will not be disqualified at the state level because of a failure on the part of their Accommodator.
ExStra has invested substantial resources in the identification of state-wise considerations that pertain to reverse exchanges. While we never provide tax advise (never, ever!), we do provide as a service an analysis of the possible tax issues that need to be dealt with in the context of a particular exchange. This information is provided in the form of a written analysis after an exchange has concluded and should be provided to the Exchangor’s tax professional. Again, this analysis is not formal tax advice but it is a list of issues that should be addressed by the tax professional for a particular exchange.
ExStra also takes the somewhat radical position that its failure to execute its incurred tax filing obligations should never damage an Exchangor. Consequently, we provide written indemnification to Exchangors against their incurred cost if an exchange is disqualified due to a failure by ExStra to file a state tax return.
Contact ExStra for more information on the state tax analysis, including a sample report, and on the filing indemnification mentioned above.