Saturday, August 9, 2008 at 12:06PM | Staff 1031 Exchange of Assisted Living Facility Disallowed by IRS
Here is a comment/question that was posted to the Exeter Discussion Board this week:
"My parents sold a retirement home. They did a 1031 in a retirement homes being built. The IRS are saying that it isn't a 1031. We really trusted the company and the lawyers that they used. Are they not responsible for falsely representing the 1031?"
I contacted the person to clarify what happened. The parents sold an assisted living facility and acquired another assisted living facility using a 1031 exchange transaction in order to defer the payment of their capital gain taxes. The IRS audited the parents and disallowed the 1031 exchange because it was a sale of a business interest. The legal title was also apparently not conveyed to the parents.
The 1031 exchange of assisted living facilities can be complicated. The 1031 exchange of investment real estate is easy, but when you throw other elements into the mix such as business interests the transaction must be carefully analyzed to determine exactly what is being sold and what is being acquired.
It appears in this case that real estate and the business interest was sold and that another real estate and business interest was acquired. This should have triggered red flags immediately that there is more than just real estate involved in this transaction and that additional analysis is needed to determine what like-kind properties exist and/or what like-kind issues need to be addressed.
