Morgan Keegan

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Morgan Keegan Company, Inc. Members New York
Stock Exchange, SIPC

• Louisiana Realtors1031 Transactions

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• 
  DISCLAIMER
• MORGAN KEEGAN does not give tax or legal advice.
  Many of the issues addressed in this presentation
  involve legal and tax matters.  However, this
  presentation is not intended to be, nor should it
  be construed as, legal advice.  You should
  consult with your legal and tax advisors prior to
  implementing any of the strategies discussed.
• Please keep in mind that  there is No Bank
  Guarantee associated with the securities offered
  through Morgan Keegan, those securities  May Lose
  Value, and are Not FDIC Insured. 

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• Agenda
• Understanding Tax Deferred Real Estate Exchanges
• Like-Kind Exchanges (IRC Section 1031)
• UPREIT Exchanges (IRC section 721)

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• Overview
• Tax-deferred real estate exchanges allow
  investors to
• Defer the payment of taxes upon the sale of
  property
• Capitalize on the value of appreciated assets
• Continue to build wealth through real estate
  investments
• Diversify, consolidate or upgrade real estate
  holdings
• Accomplish retirement and estate planning
  objectives

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• Understanding Tax Deferred Exchanges
• Like-Kind Exchange (IRC Section 1031)
• No gain or loss shall be recognized on the
  exchange of property held for productive use in a
  trade or business or for investment, if such
  property is exchanged solely for property of
  like-kind which is to be held either for
  productive use in a trade or business or for
  investment.
• IRC Section 1031 DEFERS taxesNOT a tax-free
  transaction

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Understanding Tax Deferred Exchanges1031
Exchange Real PropertyGenerally, all real
property is like-kind to all other real property

• Like-Kind Property
• Rental Houses
• Rental Condominiums
• Apartment Buildings
• Shopping Centers
• Warehouses
• Office Buildings
• Raw or Unimproved Land

• Non-Like Property
• Bonds
• Securities
• REIT Stock
• Notes
• Partnership Interest (IRC Section 721)
• Property Outside the US
• Property held for personal use

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Understanding Tax Deferred Exchanges1031
Exchange Rules

• Following IRC 1031 exchange time limits (for
  delayed exchange)
• 45 Day Rule must identify potential replacement
  properties, generally three, within 45 days from
  the date the relinquished property was sold.
• 180 Day Rule must acquire one or more
  previously identified replacement properties
  within 180 days from the date the relinquished
  property was sold.
• Identification Period Exchange Period

0 45 Days
180 Days
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Understanding Tax Deferred Exchanges1031
Exchange

• To defer capital gains tan in its entirety, the
  exchange must
• Reinvest all net proceeds from the sale of the
  relinquished property
• Acquire replacement property with an equal or
  greater amount of mortgage debt than paid off on
  the relinquished property
• Receive nothing in the exchange but like-kind
  property
• Engage a qualified intermediary to take receipt
  of the relinquished property sale proceeds and
  facilitate the exchange.

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Understanding Tax Deferred ExchangesMost Common
1031 Exchange Delayed Exchange
Sale of Relinquished Property
Purchase of Replacement Property
Cash (sale proceeds)
Cash (purchase price)
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Understanding Tax Deferred ExchangesUPREIT
Exchange (IRC Section 721)

• The basic UPREIT transaction usually includes the
  following
• An investor contributes a property to a
  partnership (Operating Partnership or OP),
  whose general partner is a REIT, in exchange for
  units in the OP (OP units)
• Such a transaction is generally a tax-deferred
  transaction under IRC Section 721
• Exchanger has the right to subsequently convert
  the OP units into REIT shares
• Typically done in a one-for-one basis
• OP Units are the economic equivalent of REIT
  shares
• Conversion would normally be a taxable event
• Upon death, heirs will receive a step-up in basis
  (elimination of built-in gain)

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Understanding Tax Deferred ExchangesCommon
UPREIT Exchange (IRC Section 721)
Investor Contributes Property
Operating Partnership Units (Convertible into
REIT Shares)