Commercial Real Estate Transactions and Environment Issues for you to know

This information is provided as a reminder that you should be investigating all possibilities of consequences and advantages of sale, exchanges, leasing, estate planning, etc. prior to your decision to sell or purchase property. Proper ownership and transferring of property is critical to avoid costly tax and estate consequences down the road. Plan now for the future!!!!

Real Estate Exchanges—Trade Now, Pay Later 1031 Exchanges

The Internal Revenue code provides an exception from the general rule that requires a taxpayer to recognize gain or loss realized at the time certain property is sold or exchanged. Section 1031 provides that no gain or loss is recognized if property is held for productive use in trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment.

The exception applies only to current recognition of gain. The gain is deferred until the “exchanged property” is disposed of in a subsequent taxable transaction. In some instances the gain may be avoided altogether, as in cases in which the exchanged property is held until the owner’s death and the basis is stepped up to the date of death value. See your accountant for specific advice.

Environmental Concerns for your Review

The fundamental reason for conducting an Environmental Site Assessment (ESA) is to determine a company’s/buyer’s level of environmental “liability” in connection with the subject property. This study assesses the property and helps to meet the regulatory liability and financial institutions’ compliance with identifying issues, controlling them, and if necessary, the actual clean-up or remediation of the property. The study is to assess the potential of on-site contamination and to identify those environmental hazards that might adversely affect the subject property.

A good site study

1. Will assess current and past site activities and waste management practices on site
2. Will assess current and past land usage and waste characterization
3. Will assess current and past activities conducted on adjacent properties to the site.

Please consult with your commercial lender to see what type of study will be necessary for your financing package, if any. Remember, ultimately you are responsible for this determination and you should be reviewing these issues for your own protection opposed to simply yet another “loan requirement”. Good business owners always review and investigate potential liabilities prior to them becoming an issue.

Consult with your insurance company, agent, attorney or legal advisors before making your final decision of what type of study you would like performed on the property.