The New 2013 Capital Gains Tax Rates for Individuals

The American Taxpayer Relief Act of 2012 has established the way long-term capital gains will be taxed in 2013 and in the future until the law is once again changed. The top rate for capital gains and dividends will remain at 15% for individual taxpayers with incomes of $400,000 or less ($450,000 for married taxpayers). The top rate for capital gains and dividends exceeding this level of income will rise to 20%.

 

In A Nutshell, here are the general rules for Federal long-term capital gains tax of individuals on the sale of investment real estate commencing with 2013 using maximum capital gains tax rates for property held 12 months or longer -

 

     20%      High income taxpayers (see above)                          
     15%      Taxpayers in a tax bracket higher than 15%              
       0%      Taxpayers in the 15% or 10% regular tax brackets     

25% Rate for “Depreciation Recapture” - Depreciation taken on the real estate which is sold is taxable at a maximum 25% tax rate (15% for taxpayers in 10% and 15% tax bracket). The remainder of the gain from the sale of depreciable real property is taxed at the maximum tax rates referred to above.

The New Medicare Tax of 3.8%. In addition, commencing in 2013, a Medicare tax of 3.8% will be imposed on capital gains from the sale of real estate for high-income taxpayers. High-income taxpayers for this tax are taxpayers with gross income of $200,000 for individuals ($250,000 for married taxpayers). This tax will only apply to the amount of gain which causes adjusted gross income to exceed this high-income threshold. Exceptions for real estate sales -  

•      Real estate owned and used in a trade or business 
•      Real estate sold by Real Estate Professionals 

A Real Estate Professional is a taxpayer who spends more than half of his time during the year (and at least 750 hours of service) in real property trades or businesses in which he materially participates.

 

A married couple filing jointly in 2013 using the standard deduction is in a 10%/15% tax bracket until adjusted gross income (including capital gains) exceeds $90,700.

Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. See our Exchange Manual at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for thousands of real estate professionals, CPAs and investors.

 

 

 

Farm and Ranch Exchanges

Farm and ranch exchanges present a host of opportunities and challenges for taxpayers since they often include a mix of different assets with differing requirements and concerns under Code Section 1031. In a nutshell, here are some of the issues involved in farm and ranch exchanges.

Real Estate can be exchanged for like-kind real estate held for business or investment and in most cases is without complication. A sale of “real estate” can include a variety of real estate interests all of which qualify as “real estate” under the like-kind replacement rules, including –

• Land and buildings
• 30+ year leasehold interests
• Oil & Gas, water and mineral rights
• Conservation and use rights
• Grazing rights

Replacement property can be any of the above real estate interests held for business or investment including raw land, improved property and more than one property.

Equipment included in the sale-exchange can be replaced with like-kind equipment. For farmers, almost any farm equipment qualifies as like-kind. The like-kind rules for farm equipment are described in the General Asset Classes of Regulation §1.1031(a)-2(b)(2) and the Product Classes of Sector 33 of the North American Industry Classification System (NAICS).

Center Pivot Sprinkling Systems are usually assumed to be subject to the like-kind replacement rules for equipment. But, there is an argument that a center pivot sprinkler system qualifies as a real estate improvement and, accordingly, can qualify under the like-kind rules applying to real estate when a taxpayer is replacing with real estate with sprinkler equipment on it. This won’t work if the farm that is being sold has a sprinkler system on it and is being exchanged for land without a sprinkler system. In this case Section 1245 depreciation recapture would kick-in if the sprinkler being sold is not replaced with Section 1245 equipment. Farm and ranch owners with sprinkling equipment need to consider these issues and discuss with their tax professional for exchange planning.

Breeding or Dairy Livestock can be exchanged for “like-kind livestock.” Same-sex is required under the like-kind rules; a bull cannot be exchanged for a heifer or cow and vice versa. Steers or feeder stock don’t qualify.

Personal Residence Issues are often a part of an exchange of farm or ranch property. If the owner lives in a personal residence on the farm the gain allocable to the personal residence may be tax free under Code Section 121 limited to $250,000 (single) or $500,000 (married filing jointly). Preferred practice is to bifurcate the sale into two sales with the taxpayer cashing out on the sale of the personal residence and proceeding with a 1031 Exchange of the balance of the farm sale.

Related Party transactions require special attention in a 1031 Exchange of farm and ranch property. “Related parties” include related individuals and related entities such as corporations, partnerships, LLCs and trusts. Deed swaps between related parties require that each party hold the property for 24 months to validate the exchange. A sale to a related party with replacement from an unrelated party is not considered to be a “related party exchange.” A sale to an unrelated party with replacement from a related party is not permitted if the related party is cashing out. It is permitted if the related party is also going thru a 1031 Exchange with replacement of qualifying real estate. Related parties or entities are described in Code Section 267(b) or 707(b)(1).

Talk to your tax advisor when you are anticipating a sale of farm or ranch property. Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can assist with questions about an exchange of your property. See our Exchange Manual and visit us at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for real estate professionals, CPAs and investors.

Do I Need To Do a 1031 Exchange of Machinery, Equipment Or Aircraft If I Can Write-Off The Entire Purchase Price In 2011?

The 2010 Tax Relief Act ramped up the amount of write-off for 2011 equipment purchases. Two provisions of the Internal Revenue Code make it possible for purchasers to deduct the entire purchase cost of machinery, equipment and aircraft.

100% Bonus Depreciation - Taxpayers can deduct the entire purchase price of new equipment purchased in 2011 under the rules for “Bonus Depreciation.” Before 2011 the deduction was limited to 50% of the purchase price of the equipment. The 50% rule will apply again in 2012. The original use of the equipment must commence with the taxpayer – used equipment doesn’t count.

The Section 179 Deduction – Up to $500,000 of the cost of new or used equipment can be deducted in 2011 under Code Section 179. However, there are special rules for the Section 179 Deduction. Certain types of purchases are not eligible for the 179 Deduction, including –

• Property which is not used in a trade or business,
• Property acquired from a related party,
• Property which is leased to another user or lessee,
• Property acquired in a 1031 Exchange

The $500,000 deduction phases out for taxpayers purchasing more than
$2 million in machinery or equipment during the year. The maximum deduction and phaseout levels drop to $25,000 and $200,000 beginning in 2012. The 179 Deduction is limited to income reported for the year from the taxpayer’s trade or business and cannot result in a loss being reported. Excess deductions can be carried forward.

Sales taxes are often a motivating reason a taxpayer may want to structure a 1031 Exchange regardless of the possible first-year write-offs referred to above. For example, if a taxpayer sells an aircraft for $1 million and buys a replacement aircraft for $2 million, sales tax will apply to the $2 million purchase price of the replacement aircraft. If the taxpayer engages the services of an Exchange Intermediary to help him structure a qualifying “exchange,” the sales tax is limited to the “boot paid” - $1 million in this case. The difference in sales tax liability can obviously be significant.

These issues must be discussed with your tax professional for complete information on how these rules may affect you in your circumstances. Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. See our Exchange Manual at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for thousands of real estate professionals, CPAs and investors.

What Realtors Should Know About 1031 Exchanges

Realtors are Often the First to Recognize the Potential Benefits of a Section 1031 Exchange to a seller of real estate. When a seller is going to replace qualifying real estate with replacement real estate, a Section 1031 Exchange should be suggested. It is possible for a seller to employ the services of an Exchange Intermediary at any time after a contract is executed up to the day of closing on the contract. It is too late after the closing has occurred.

Accommodation Language in the Contract. Accommodation language is usually placed in the Contract to Buy and Sell Real Estate wherein the other party to the contract is informed and agrees to cooperate with the 1031 exchange. Typical accommodation language might read as follows:

For a Seller - "A material part of the consideration to the seller for selling is that the seller has the option to qualify this transaction as a tax deferred exchange under Section 1031 of the Internal Revenue Code. Purchaser agrees to cooperate in the exchange provided purchaser incurs no additional liability, cost or expense."

For a Buyer - "This offer is conditional upon the seller's cooperation at no cost to allow the purchaser to participate in an exchange under Section 1031 of the Internal Revenue Code at no additional cost or expense. Seller hereby grants buyer permission to assign this Contract to an Intermediary not withstanding any other language to the contrary in this Contract".

Accommodation language is not mandatory and can be omitted if it puts the taxpayer at a disadvantage for other parties to know about his plan to sell and replace property under IRC §1031 and related closing pressures under the exchange 'time clocks."

Assignment of Contracts. If a Realtor knows that a buyer intends to assign the contract to an Intermediary in connection with an exchange, it is helpful to reference the buyer as "John Doe or Assigns" on the contract.

Paragraph 18 of the standard form Contract to Buy and Sell Real Estate used by Colorado Realtors contains a provision wherein the contract is not assignable by a buyer without the seller's permission unless the seller's permission is so indicated with a check in the "'shall' be assignable" box. The standard form Contract does not limit a seller's right to assign the contract.

Another way to make the contract "assignable" is for an addendum to the contract to be prepared by the Realtor making the contract "assignable." An Exchange Addendum to Contract to Buy and Sell Real Estate issued by the Colorado Real Estate Commission containing all necessary accommodation language is also available. Use of this Addendum makes contract accommodation language unnecessary and automatically provides for assignability of a contract by the buyer in an exchange transaction.

Settlement Statements. Section 1031 of the Internal Revenue Code imposes no requirements and provides no guidance with respect to preparation of settlement statements for an exchange of property. The Colorado Real Estate Commission has no special requirements concerning exchanges involving an Intermediary.

Intermediaries often instruct closers to name the Intermediary as the seller of a property on behalf of their client. This is not required by IRC §1031 and creates additional closing burdens since it requires the Intermediary to sign the settlement statements.

An occasional (but unnecessary) practice is for the title company closing on the transaction to prepare a second set of settlement statements in which the Intermediary is shown as a buyer and seller. The Intermediary's set of statements "mirror" each other as to debits and credits. The thinking here is that the settlement statements should reflect a "chain of title." This practice is not required by IRC §1031.

Our recommendation is to prepare one set of settlement statements in the normal manner which total to zero proceeds due to or from the Exchanger. The settlement statements should be made to total to zero proceeds due to or from the Exchanger by showing a debit or credit for "Exchange Funds - 1031 Corporation" as a transaction item "above the bottom line". The amount of "Exchange Funds" is the amount of funds being transferred to or from the Intermediary in connection with the closing.

Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. See our exchange manual and visit us at http://www.1031cpas.com/. 1031 Corporation is the Intermediary of choice for thousands of real estate professionals, CPAs and investors.

Your 1031 Exchange - The Procedure

1. Contact us to open an exchange file for you before your sale closes. We will consult you on the information we need to obtain from you.

2. Fax or email us a copy of your contract to sell your exchange property. 303.684.6899 or 1031@1031cpas.com

3. We will prepare an Exchange Agreement and other documents necessary for the exchange.

4. We will “step into your shoes” as a substitute seller by virtue of an assignment of your interest in your contract to sell.

5. We will contact and provide your closer with closing instructions. We will open a interest-bearing money market account in our name in trust for you. Your closer will be instructed to wire funds from the sale to this account. The cash will be held in this account until the purchase of your replacement property at which time the cash will be forwarded to the replacement property closing.

6. Search for suitable property to purchase for your exchange replacement property. More than one property can be purchased as replacement property

7. Provide us with a 45-day Identification Letter to identify prospective replacement properties if you have not completed your exchange during the first 45-days after closing on the sale of your exchange property. The letter can identify three prospective replacement properties or more than three if the total value of the identified properties does not exceed 200% of the value of the property that was sold. The letter is due by midnight of day 45. A signed contract to purchase replacement property by day 45 is desirable but not required by the Regulations.

8. Enter into a contract to purchase your replacement property and schedule a closing. Contact us prior to the closing. Fax or email us a copy of the contract. We will provide instructions to the closer and arrange for a wire transfer of exchange funds we are holding for you. The closer will be instructed to directly deed the property to you.

9. Your Exchange is Finished. We will provide you with an Exchange Report with copies of all exchange documents for your reference and income tax reporting.

10. See our Exchange Manual and Visit us at www.1031cpas.com

EXCHANGES OF OIL, GAS AND MINERAL INTERESTS

Oil, gas and mineral interests are real estate interests which qualify for a like-kind exchange with any other qualifying real estate interest including -
- A fee interest in real estate
- Fractional ownership interests
- 30+ year leasehold interests
- Other oil, gas and mineral interests
- Conservation easements
- Transferable development rights
- Right-of-way easements
- Water rights
- Mutual irrigation ditch stock

A mineral interest is a perpetual interest on all of the minerals on a parcel of land including oil and gas, coal, gold, sand, gravel, water, etc.

There are several different kinds of ownership of oil, gas and mineral interests which include –
- Mineral rights which are a part of fee ownership of the ground.
- Mineral rights which are owned separately from ownership of the ground.
- A mineral lease granted to a lessee by the owner of the mineral rights.
- A royalty interest which can be viewed as a form of rent received by the lessor of the mineral rights.

A mineral lease gives the lessee the right to extract the mineral for a period of time, or until exhaustion of the mineral. Mineral leases are sometimes referred to as a working interest or an operating interest. The lessee is the operator who is extracting the mineral. A mineral lease can be subleased to other operators.

An exchange of a working or operating interest might include equipment or other tangible personal property which would need be viewed as a multi-asset exchange (more than one kind of property).

A production payment is a right to the mineral in place for a specified sum of money, payable out of a specified percentage of the mineral production. It is a “carved out production payment” and is not considered real property for exchange purposes.

Depletion expense can be deducted by the owner of an operating or royalty interest. There are two types of depletion: percentage depletion and cost depletion. Taxpayers use the method that yields the highest deduction.

Intangible drilling costs are operating costs to extract the mineral. Costs for fuel, preparation of a site, and wages are examples of intangible drilling costs.

Mineral property exchanges may be subject to recapture under Section 1254 if deductions were taken for depletion or intangible drilling costs on the relinquished property. The replacement property must be both like-kind and natural resource recovery property (Section 1254 property) to avoid recapture.

Call us at 888-37-1031 or email us at 1031@1031cpas.com if we can help with any questions. See our Exchange Manual at http://www.1031cpas.com/. 1031 Corporation is the Intermediary of Choice for thousands of real estate professionals, CPAs and investors.

1031 Exchanges Apply to More than Real Estate

Whenever the phrase “1031 Exchange” comes up, most of us automatically think of exchanges of real estate since this is the most common type. However, 1031 exchanges are much broader than real estate and the Section 1031 rules apply to many different types of transactions described below.

Qualifying like-kind “real property” is a very broad type of asset under the “like-kind” rules of the Internal Revenue Code and Regulations. All of the following real estate interests qualify as "like-kind" to each other under Code Section 1031 -

• 100% ownership interests
• Fractional ownership interests
• 30+ year leasehold interests
• Conservation easements
• Transferable development rights
• Right-of-way easements
• Water rights
• Mineral rights
• Oil & gas interests
• Mutual irrigation ditch stock

Other types of property which are eligible for tax deferral under the 1031 Exchange rules include:

• Aircraft
• Automobiles and trucks
• Breeding livestock herds
• Information systems
• Machinery & Equipment
• Ships and boats
• Dairy cows
• Intangibles (i.e. mailing lists or client/patient files)

Sales taxes are often a motivating reason a taxpayer may want to structure a 1031 Exchange. For example, if a taxpayer sells an aircraft for $1 million and buys a replacement aircraft for $2 million, sales tax will apply to the $2 million purchase price of the replacement aircraft. If the taxpayer engages the services of an Exchange Intermediary to help him structure a qualifying “exchange,” the sales tax is limited to the “boot paid” - $1 million in this case. The difference in sales tax liability can obviously be significant.

Basic Rules. Only qualifying assets are eligible for a 1031 exchange. To qualify, the asset must be like-kind property held for business or investment purposes. Personal use property does not qualify.

Title to the replacement property must be in the same taxpayer name(s) as what was sold. In order to fully defer taxes, the replacement property must be of equal or greater value to that which was sold. If all cash proceeds are not reinvested, or a trade down in value occurs, some taxable gain will result. IRS-prescribed time requirements (45 day and 180 day requirements) must be strictly adhered to. Finally, the taxpayer cannot receive any of the net sales proceeds from the relinquished property sale.

Generally, a Qualified Intermediary is involved in the exchange to hold funds, assist the client and his tax professional and administer the exchange. While the rules of a 1031 exchange may seem challenging, an experienced Qualified Intermediary can make these hurdles easy to navigate.

Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. See our Exchange Manual at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for thousands of real estate professionals, CPAs and investors.

How To Report An Exchange Of Property Used Partly for Personal Residence and Partly for Investment Purposes

Revenue Procedure 2005-14 provides guidance on tax reporting issues under IRC §121 and §1031 for exchanges of property that are combination or dual-use residential and business/ investment property.

Background - A homeowner can exclude gain from the sale of a personal residence if he owned and used the property as his principal residence for at least two of the five years preceding the date of sale (IRC §121). The maximum amount of gain exclusion is $250,000 ($500,000 married filing joint). However, the maximum amount of gain exclusion is reduced by a fraction for any rental use (non-qualified use) of the residence occurring after January 1, 2009 compared to the total years of ownership. And, any depreciation taken on the property since May 6, 1997 is not eligible for the exclusion.

Treasury Regulation 1.121-1 issued in 2002 made it clear that the IRC §121 exclusion of gain on the sale of a personal residence applies to an entire structure that is used partly as a personal residence and partly for business or investment use. The business/investment portion of a combination or dual-use residential property is also eligible for tax deferral under IRC §1031.

Accordingly, residential property may be eligible for the §121 exclusion and §1031 tax deferral under both provisions of the Internal Revenue Code simultaneously. Revenue Procedure 2005-14 gives six examples of how to report exchanges of property eligible for exclusion under IRC §121 and §1031 in varying circumstances that can be summarized by the following examples. For purposes of these examples, assume the taxpayer is single and eligible for a gain exclusion of $250,000 under IRC §121. In practice, the maximum exclusion will probably have to be reduced for non-qualified use after January 1, 2009.

Rental Property Converted from a Personal Residence in a Prior Year. IRC §121 does not require a taxpayer to be residing in a residence at the date of sale in order to qualify for the gain exclusion. If the taxpayer owned and lived in a residence in two out of the past five years, it is eligible for gain exclusion under IRC §121 even if it is presently being used as a rental. The taxpayer can exclude gain up to $250,000 under IRC §121 except for any depreciation taken on the property since May 6, 1997. Gain resulting from depreciation or gain in excess of the §121 exclusion is eligible for tax-deferral under IRC §1031. Realized gain is first excluded under IRC §121 and then deferred under IRC §1031. Cash boot of up to $250,000 received on the exchange would be tax-free under §121 even though the residence was used partly for investment/business purposes. Basis in the Replacement Property is increased by any gain excluded under IRC §121 in excess of cash received under IRC §121. This can get tricky, see Rev. Proc. 2005-14 for specifics.

Combination Property - One Property, Two Structures. If a taxpayer owns a property with a residence on it and a second structure used for business purposes, the property is a combination property. Part of the property is eligible for gain exclusion under IRC §121 and part of the property is eligible for tax-deferral under §1031. The exchange has to be accounted for as if there were two properties being sold and exchanged. The value of the Replacement Property has to be allocated between personal and business uses and realized gain is measured separately for each property. If the exchange of the business use of the Relinquished Property for business use Replacement Property results in a trade-down, there will be taxable boot on the exchange of the business portion of the Relinquished Property. Gain attributable to the business portion of the Relinquished Property cannot be excluded under IRC §121 or vice versa. Basis in the Replacement Property is measured separately for the personal residence and business portions of the property under the normal rules.

Dual Use Property - One Structure Used Partly for Residential and Business Uses. Any gain resulting from cash or debt reduction boot realized on the exchange will be tax-free up to $250,000 under IRC §121 even if the gain is allocable to or results from a trade-down on the business portion of the Relinquished Property. That is, except for any depreciation taken on the Relinquished Property since May 6, 1997. However, gain resulting from depreciation taken on the property since May 6, 1997 is also eligible for tax-deferral under IRC §1031. Variations on this theme can be summarized as follows:

• 
  
  All gain on the Relinquished Property up to a maximum of $250,000 can be excluded under IRC §121 except for depreciation taken on the property since May 6, 1997. Depreciation taken on the property that is allocable to the 1031 portion of the property can be tax-deferred under IRC §1031. Depreciation on the property after May 6, 1997 that is allocable to the personal residence portion of the property cannot be deferred under §1031.


• 
  
  Cash (or debt reduction) boot received on the exchange is tax-free under IRC §121 up to a maximum of $250,000 even if it relates to the 1031 portion of the property. (Except for post May 6, 1997 depreciation).


• 
  
  Gain on the exchange allocable to the personal residence portion of the property in excess of $250,000 is taxable under IRC §121 and cannot be sheltered under IRC §1031.

Revenue Procedure 2005-14 does not address closing issues on exchanges of property used partly for residential purposes and partly for investment/business uses. Treasury Department Publication 523 (1998, now replaced by new Pub. 523) instructed taxpayers with Dual-Use Property to treat the sale as two sales. Intermediaries frequently separate an exchange of dual-use property in a similar manner with separate settlement statements so that the taxpayer can cash-out on the personal residence part and roll the 1031 part thru an exchange. As a result of Rev Proc 2005-14, this is no longer necessary for Dual-Use Property. Whatever cash is pulled out of the exchange of dual use property is allocated first to the personal residence. Separate settlement statements remain desirable for sales of Combination Property since all data will have to be prorated for Combination Property.

Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. Our Exchange Manual is also available free of charge at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for real estate professionals, CPAs and investors

Thank You to Our Clients and Friends for Over 20 Years in the 1031 Exchange Business!

Now that we are well into 2011, all of us at 1031 Corporation Exchange Professionals want to express our appreciation for the opportunity we have had over the last 20 years to be of service to our clients and friends.

2010 marked our 20th anniversary as an Exchange Facilitator. Beginning in Boulder County, Colorado we quickly began experiencing an opportunity to work with clients across Colorado and across the country from the east to the west coast. It has been a very gratifying experience for us and we appreciate the confidence our clients and friends across the country have expressed in us and our services.

In 2006, 1031 Corporation became a part of FirstBank of Colorado. With this partnership, clients of 1031 Corporation were able to be assured of the safety of their exchange funds in uncertain times in the industry and economy. FirstBank remains one of the top performing banks in Colorado with over 130 branches in Colorado, Arizona and California and over $10 billion in assets. We are proud to be able to offer such a high level of safety and security to our clients.

The Exchange Industry and related real estate market have seen many ups and downs over the past 20 years and we are currently emerging from one of the worst real estate downturns in recent memory. 2010 showed a steady increase in 1031 transactions and we are optimistic about the prospects for 2011.

At 1031 Corporation we are all dedicated to serving our clients at the highest level of competence and professionalism. Please accept our sincere thanks to all of you and feel free to call us at any time if we can be helpful.

Feel free to visit us and see our exchange manual at 1031cpas.com , or email us at 1031@1031cpas.com.

Exchanges of Aircraft and Equipment Can Still Save Taxes Even Though the 2010 Tax Relief Act Permits a 100% Write-Off for Replacement Purchases

For Aircraft and Equipment purchased and placed in service after 09/08/10 and before 2012 the up-front §168(k) Bonus Depreciation deduction is increased to 100% by the 2010 Tax Relief Act. If a taxpayer sells aircraft or equipment during this time frame, the entire taxable income from the sale, including depreciation recapture, can be offset by the purchase of NEW aircraft or equipment during the same tax year. The replacement property has to be NEW.

Does this make a 1031 exchange of aircraft or equipment obsolete or unproductive for a taxpayer purchasing NEW replacement property? Partially but not entirely.

We recently had a client who was exchanging a $1 million aircraft for a $2 million replacement aircraft. His exchange was failing under Code Section 1031 because he couldn’t acquire the replacement aircraft within the required 180-day replacement period. But, he was saving $50,000 in sales taxes with his exchange. His sales tax was based on the boot paid for the replacement aircraft ($1 million). Had he not been doing an exchange, his sales tax would have been based on the entire cost of the replacement aircraft ($2 million). The exchange saved this taxpayer $50,000 in sales taxes.

What if the taxpayer is replacing with USED replacement aircraft or equipment? Well, maybe the taxpayer can offset a sale with the purchase cost of the replacement property under Code §179 even though it is not eligible for the bonus depreciation write-off under the 100% Bonus Depreciation rules of §168(k). But, Section 179 deductions are limited to $500,000 in total and phase out for a taxpayer with purchases in excess of $2 million for the year.

In any event, sales tax savings can be substantial and taxpayers and their advisors need to take a look at sales tax issues before they decide that an aircraft or equipment exchange will not be helpful.

Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. Our Exchange Manual is also available free of charge at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for real estate professionals, CPAs and investors.

Exchanges In Process at End of Year - Planning Opportunities

Taxable Income recognized from a 1031 Exchange can be reported under the installment sale rules of IRC §453 if an exchange starts in 2010 and ends in 2011.

Taxpayers who meet the requirements of the regulations are entitled to report any gain recognized on an exchange under the installment sale method of tax accounting (See Reg. §1.1031(k)-1(j)(2)). However, the regulation applies only if the Exchange Property is eligible for like-kind exchange treatment and if the taxpayer had a bona fide intent to enter into a 1031 Exchange.

If taxpayer has entered into a delayed exchange before the end of 2010 and cashes out or receives cash after December 31, 2010, gain on the exchange can be reported like an installment sale subject to the rules of IRC §453. The Exchange is reported in 2010 but gain attributable to the cash received in 2011 is deferred under the installment sale rules until 2011 and reported on the 2011 return.

Or, if the taxpayer so elects, cash received from the Exchange can be reported in 2010 even though the cash was received in 2011. This gives taxpayers the opportunity of selecting the best year to report the gain attributable to the cash received. Since capital gains tax rates for 2011 will be higher than 2010 unless Congress elects to extend the 2010 rates, this option provides taxpayers with a tax-planning alternative which is flexible enough to accommodate whatever Congress does with the tax rates.

Talk to your tax advisor about your alternatives in this uncertain tax environment. Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions. Our Exchange Manual is also available free of charge at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for real estate professionals, CPAs and investors.

Automatic Capital Gain Tax Rate Increases for 2011

Capital gains on the sale of assets held more than 12 months are taxed at a lower rate than ordinary income. The Jobs and Growth Tax Relief Reconciliation Act of 2003 and Tax Reconciliation Act of 2006 temporarily reduced the tax rate on long-term capital gains until January 1, 2011. At this time, the previous rates are scheduled to be automatically reinstated. Congress has been discussing a temporary extension of the current tax rates but this possibility remains uncertain at the present time.

As a result, taxpayers face uncertainty about whether they should be planning for taxable gains in 2010 or 2011. Or, whether they should defer their taxes under Code Section 1031 with an exchange of real estate or cash-out and take their gains in 2010 before a higher tax rate becomes effective.

Tax rates on long-term capital gains on a sale of real estate now and in 2011 can be summarized as follows if there is no further action by Congress –

Now - 15% for taxpayers in a regular tax bracket higher than 15%. Zero for taxpayers in a tax bracket of 15% or lower

2011 - 20% for taxpayers in a regular tax bracket higher than 15%. 10% for taxpayers in a tax bracket of 15% or lower.

Capital gains (long-term) attributable to depreciation taken on real estate investments are taxed at a rate of 25% (15% for taxpayers in a 10% or 15% tax bracket) before the above referenced tax rates begin to apply.

Commencing in 2013, a new Medicare tax of 3.8% will be imposed on capital gains from the sale of real estate for high-income taxpayers. High-income taxpayers are taxpayers with gross income of $200,000 for individuals or $250,000 for couples. This tax will only apply to the amount of gain which causes adjusted gross income to exceed the high-income threshold.

Talk to your tax advisor about your alternatives in this uncertain tax environment. You may find that a 1031 Exchange remains desirable as an alternative to paying taxes under either rate schedule. Call us at 888-367-1031 or email us at 1031@1031cpas.com if we can help with any questions.

Give us a call at 888-367-1031 or email us at 1031@1031cpas.com if we can help with questions about how a 1031 Exchange can help you. See our Exchange Manual and visit us at http://www.1031cpas.com/ for additional information on how 1031 exchanges can help you save taxes

Option Payments & Earnest Money Deposits

Our Exchange clients frequently ask us about how to avoid taxable boot on an Exchange where option payments under an option contract or earnest money deposits have been received prior to the closing on the sale of their Relinquished Property. Option payments may have been received by the taxpayer months or even years in advance of a closing on the sale of the property. Earnest money deposits are commonly received when a contract to sell real property is executed and are under the same tax rules as option payments received by a taxpayer.

Money received in advance of a sale of real estate is not taxed until the sale is closed and possession of the real property is transferred to the buyer. If the option is forfeited and retained by the taxpayer payments received under the option contract are taxable as ordinary income in the year of the forfeiture. If the option is exercised and the property is sold, payments received under the option contract are taxable as part of the proceeds of sale of the property. For this reason, payments from option contracts or earnest money deposits are not reported before the sale is closed and possession is transferred to the buyer or the option or deposit is forfeited and retained by the taxpayer, whichever occurs first.
If a taxpayer wants to enter into an exchange under Section 1031 of the Internal Revenue Code and shelter the option payments received from income tax as well as the proceeds of sale of the property, this can be done at the sale/exchange closing.

To be included in the 1031 Exchange, the option money received by the taxpayer prior to the closing has to be brought to the closing table where it becomes part of the sale proceeds which are remitted to the Exchange Facilitator (Qualified Intermediary). It is unnecessary for the Exchange Facilitator to receive or hold the option money from the taxpayer prior to the closing on the sale of the real estate. It is also unnecessary for the taxpayer to bank the money in an escrow account or otherwise. It doesn’t matter where the taxpayer gets the money as long as cash is remitted to the closing in an amount equal to the payments previously received.

Give us a call at 888-367-1031 or email us at 1031@1031cpas.com if we can help with questions about how a 1031 Exchange can help you. See our Exchange Manual and visit us at www.1031cpas.com for additional information on how 1031 exchanges can help you save taxes.

The Rules of Boot in a 1031 Exchange

A Taxpayer Must Not Receive "Boot" from an exchange in order for a Section 1031 exchange to be completely tax free. Any boot received is taxable (to the extent of gain realized on the exchange). This is okay when a seller desires some cash and is willing to pay some taxes. Otherwise, boot should be avoided in order for a 1031 Exchange to be tax free.

The term "boot" is not used in the Internal Revenue Code or the Regulations, but is commonly used in discussing the tax consequences of a Section 1031 tax-deferred exchange. Boot received is the money, debt relief or the fair market value of "other property" received by the taxpayer in an exchange. Money includes all cash equivalents received by the taxpayer. Debt relief is any net debt reduction which occurs as a result of the exchange taking into account the debt on the Relinquished Property and the Replacement Property. "Other property" is property that is non-like-kind, such as personal property received in an exchange of real property, property used for personal purposes, or "non-qualified property." "Other property" also includes such things as a promissory note received from a buyer (Seller Financing).

Boot can be inadvertent and result from a variety of factors. It is important for a taxpayer to understand what can result in boot if taxable income is to be avoided. The most common sources of boot include the following:

· Cash boot received during the exchange. This will usually be in the form of "net cash received" at the closing of either the Relinquished Property or the Replacement Property.

· Debt reduction boot which occurs when a taxpayer’s debt on Replacement Property is less than the debt which was on the Relinquished Property. As with cash boot, debt reduction boot can occur when a taxpayer is "trading down" in the exchange.

· Sale proceeds being used to service costs at closing which are not closing expenses. If proceeds of sale are used to service non-transaction costs at closing, the result is the same as if the taxpayer received cash from the exchange, and then used the cash to pay these costs. Taxpayers are encouraged to bring cash to the closing of the sale of their Relinquished Property to pay for the following non-transaction costs:

a. Rent prorations.

b. Utility escrow charges.

c. Tenant damage deposits transferred to the buyer.

d. Property tax prorations? Maybe, see explanation below.

e. Any other charges unrelated to the closing.

Tax prorations on the Relinquished Property settlement statement can be considered as service of debt based on PLR 8328011. Under this rationale exchange cash used to service tax prorations should not result in taxable boot. However, taxpayers may want to bring cash to the Relinquished Property closing anyway in order to resolve this issue.

Excess borrowing to acquire Replacement Property. Borrowing more money than is necessary to close on Replacement Property will cause cash being held by an Intermediary to be excessive for the closing. Excess cash held by an Intermediary is distributed to the taxpayer, resulting in cash boot to the taxpayer. Taxpayers must use all cash being held by an Intermediary for Replacement Property. Additional financing must be no more than what is necessary, in addition to the cash, to close on the property.

Loan acquisition costs with respect to the Replacement Property, which are serviced from exchange funds being brought to the closing. Loan acquisition costs include origination fees and other fees related to acquiring the loan. Taxpayers usually take the position that loan acquisition costs are being serviced from the proceeds of the loan. However, the IRS may take a position that these costs are being serviced from Exchange Funds. There is no guidance which is helpful in the form of Treasury Regulations on this issue at the present time.

Non-like-kind property, which is received from the exchange, in addition to like-kind property (real estate). Non-like-kind property could include the following:

· Seller financing, promissory note

· Furniture and fixtures acquired with purchase of real estate

· Sprinkler equipment acquired with farm land

Boot Offset Rules - Only the net boot received by a taxpayer is taxed. In determining the amount of net boot received by the taxpayer, certain offsets are allowed and others are not, as follows:

· Cash boot paid offsets cash boot received (but only at the same closing table).

Cash boot paid at the Replacement Property closing table does not offset cash boot received at the Relinquished Property closing table (Reg. §1.1031(k)-1(j)(3) Example 2). This rule probably also applies to inadvertent boot received at the Relinquished Property closing table because of prorations, etc. (see above).

· Debt incurred on the Replacement Property offsets debt-reduction boot received on the Relinquished Property.

· Cash boot paid offsets debt-reduction boot received.

· Debt boot paid never offsets cash boot received (net cash boot received is always taxable).

· Exchange expenses (transaction and closing costs) paid offset net cash boot received.

Rules of Thumb:

· Always trade "across" or up. Never trade down (the “even or up rule”). Trading down always results in boot received; either cash, debt reduction or both. The boot received is mitigated by exchange expenses paid.

· Bring cash to the closing of the Relinquished Property to pay for charges which are not transaction costs (see above).

· Do not receive non-like-kind property (or if you do, pay for it).

· Do not over-finance Replacement Property. Financing should be limited to the amount of money necessary to close on the Replacement Property in addition to exchange funds which will be brought to the Replacement Property closing.

Give us a call at 888-367-1031 or email us at 1031@1031cpas.com if we can help with questions about how a 1031 Exchange can help you. See our Exchange Manual and visit us at http://www.1031cpas.com/ for additional information on how 1031 exchanges can help you save taxes.

A Section 1031 Exchange May Be Helpful Even When a Property is Sold at a Loss

In today’s real estate market sellers often have to accept a sale price which is less than what was originally paid for a property. Sellers are often dismayed to learn that even if the property is sold at a “loss” or at a foreclosure sale, income taxes may be due.

A taxable gain on the sale of property can result even though a taxpayer sells the property for less than what was paid for it when it was purchased. Income taxes are due when a taxpayer sells property at a net sale price which exceeds the “tax basis” in the property as distinguished from what was paid for the property when it was acquired.

Tax basis is comprised of the following elements for a property which is purchased:

-Purchase price paid for the property.
-Plus improvements made to the property subsequent to the purchase.
-Minus any depreciation taken on the property after purchase.
-Minus any deferred gain from a 1031 exchange when the property was acquired (if any).

Since depreciation and deferred gain from a 1031 exchange decrease tax basis, gain can result even though the property is sold for less than what was paid for it. For example, if a property that is being sold for $400,000 was acquired a few years ago for $500,000 and currently has a tax basis of less than $400,000, a taxable gain will result on the sale. A 1031 Exchange can be utilized to defer the income taxes on this gain if the investor is going to reinvest the proceeds of the sale in to replacement real estate.

The gain on the sale of property is taxed at capital gains tax rates. The maximum long-term capital gains tax rates for property held for 12 months or longer can be summarized as follows:

-25% for the amount of the gain equal to depreciation taken on the property
-15% for the remainder of the gain (20% after January 1, 2011 unless new tax law extends the 15% rate)
-Plus a possible alternative minimum tax which often occurs when a large capital gain is reported
-Plus state income taxes which will be due on the sale

Talk to your tax advisor when you are anticipating a sale of your property. You may find that a 1031 exchange can save you taxes even if you are selling the property at a loss.

If you have any questions we can help with, contact us at 888-367-1031 or email us at 1031@1031cpas.com. Our Exchange Manual is also available, free of charge at www.1031cpas.com. 1031 Corporation is the Intermediary of choice for thousands of real estate professionals, CPAs and investors.

What Is The Tax Rate on Boot Received in a 1031 Exchange? (15% or 25%?)

When depreciable real estate is sold gain on the sale is taxed under the capital gains tax rules at a maximum of 25% to the extent of any depreciation taken on the property being sold. Gain in excess of the depreciation taken is taxed at a maximum rate of 15%. This depreciation is referred to as “Unrecaptured Section 1250 Depreciation". Accountants often refer to it as “25% Rate Gain.”

When depreciable real estate is exchanged and the taxpayer is reporting “boot” received on the exchange, accountants must decide if the boot is taxed at 15% or 25%. Accountants commonly think that the 25% rate must be used before any gain on the sale can be taxed at 15%. This is the way the capital gain rates are applied under the Installment Sale Rules and ordering structure of IRC §453.

However, there is no guidance issued by the IRS which applies to this issue in the case of boot being reported on an exchange of depreciable real estate. Also, Internal Revenue Reg. 1.168(i)-6 instructs taxpayers to carryover the cost and accumulated depreciation of the relinquished property to the depreciation schedule of the replacement property (referred to as “exchanged basis”).

Since the accumulated depreciation of the relinquished property is carried over to the depreciation schedule of the replacement property, isn’t it possible to argue that the 25% Rate Gain is also carried over to the replacement property and deferred until a cash-out of the replacement property?

This is certainly a taxpayer argument which is logical and has merit. And accordingly, taxpayers reporting boot on an exchange of depreciable real estate might wish to use this argument to limit the tax on boot received to 15%.

Taxpayers should always consult with their tax professional for guidance on issues such as this. See our Exchange Manual or call us at 888-367-1031 if we can help with any questions you may have about 1031 Exchanges.

Research Study Points to Investment Opportunity?

Recently I received a report from Marcus & Millichap's Research Services that I found quite interesting. In the report, they point to the very real potential of further increases in homeowner delinquency rates and further declines in homeownership rates.

They estimate more than six million current homeowners owe more on their home than they are worth. Assuming no additional declines in value nearly all of them will need at least five years to just to get back to break even on their value. U.S. homeownership rate currently sits at just over 67% which is down about 2% over the highs we saw a couple years back. However, once you take into account the upside-down homeowners, the effective homeownership rate is nearly 6% lower. Markets we've all heard about - Phoenix, Miami and Las Vegas - have been hit the hardest and the biggest gap in homeownership exists.

So what does this mean for investors? M & M points out that apartment owners will be the group that benefits the most from the increase in residential defaults projected as prior homeowners become renters. According to their findings, cccupancy rates are likely to improve in late 2010 and 2011 as economic recovery gains traction. They do point out that many bank-owned homes will elevate rental competition as investors scoop up good deals and this will limit rental gains for the next 12 to 24 months. Long term, they believe, the expanded renter pool (which will also benefit from the growing echo boomer population) should contribute to increased rent growth.

I also thought it interesting that they believe the retail market might actually benefit from the increased defaults on home mortgages. They theorize that, as a portion of cash is freed up from prior larger mortgage payments, retail sales will increase. They do indicate that they continue to believe relatively modest job growth (triggered by early signs of a recovery) will cause retail fundamentals to lag the broader commercial market.

It will be interesting to see how the summer and fall months (with many political races also occuring) will impact these predictions. Talking with a number of real estate professionals, there is a real sense that the homebuyer tax credits did, indeed, provide a boost to the housing recovery (or stabilization). In addition, as some of the temporary government census jobs are dismissed, it will be interesting to see if the economy has yet gained enough traction to offset these lost positions.

So what's an investor to do? Sell now? Hang tight? Add to their portfolio? Exchange to re-position their real estate assets? While opinions vary, many experienced investors and financial profesionals believe there are winners to be had in the present economic environment. It is up to you to determine whether those opportunities exist in apartments, rental homes, retail or some other category. With just as many opinions on the direction of the economy and the impacts on real estate, this is an individual question that demands consultation with a trusted real estate expert (or a few!), reflection on your own personal finacial situation and risk tolerance and, of course, the help of a solid tax professional.

If you determine that re-position your portfolio fits your situation, you have a great advantage in the taxation question with a 1031 exchange. The professionals at 1031 Corporation would love to speak with you about the opportunies that exist to exchange your present real estate assets for ones that may position you to take advantage of future recovery. Give us a free, no obligation call today at 888-367-1031.

Leasehold Interests and 1031 Exchanges Frequently Asked Questions

A leasehold interest with a term of 30 years or more is like-kind to a fee interest in real estate (Reg. §1.1031(a)-1(c)(2)). Renewal options under the lease are counted for purposes of determining if the lease has 30 years or more to run. Accordingly, a 30 year leasehold interest can be exchanged for a fee interest in real estate or vice versa - a fee interest in real estate can be exchanged for a 30 year leasehold interest.

Leasehold interests with less than 30 years remaining under the lease are not like-kind to a fee interest in real estate. But, they can qualify as like-kind to other leasehold interests with either 30 years remaining under the lease or less than 30 years.

What is the difference between a lease and a leasehold interest?

A Leasehold Interest is an interest in real estate which is acquired and possessed by a person who is the lessee of the property under the terms of a lease. The Lessor is the owner of the property. The Leasehold Interest might be bare land or land with improvements. Sometimes the leasehold improvements are in place when the lease is executed and sometimes the improvements are constructed by the lessee after the lease is executed.

A Lease is the legal instrument documenting the terms and number of years of possession by the lessee.

What is the tax basis of a leasehold interest acquired as replacement property in a 1031 Exchange?

Tax basis is the purchase cost of obtaining the lease minus the deferred gain resulting from the exchange. If improvements are constructed on the leasehold, tax basis will include the cost of such construction or improvements.

How is the tax basis of a leasehold interest depreciated?

The tax basis of a leasehold interest is amortized over the number of years the lease has to run, including options for renewal of the lease.

If I exchange bare land for a 30 year lease of a commercial building, I can amortize the tax basis attributable to the bare land over 30 years?

Yes, the tax basis of the leasehold interest is amortized over the life of the lease, including options for lease renewal.

What if the term of the lease is for 30 years plus an option to renew for an additional 30 years (60 years in total)? Am I required to amortize a commercial office building which ordinarily could be depreciated over 39 years over 60 years?

The building can be depreciated over the ;">MACRS recovery period (39 years in this case) if the life of the lease, including renewal options is longer than the MACRS recovery period (Reg. §1.178-1(b)(3)). The cost basis allocable to the land would be amortized over the life of the lease, including renewal options.

What if the term of the lease is for 20 years plus an option to renew for an additional 20 years (40 years in total) and I do not intend to exercise the renewal option?

Amortization of the tax basis of the lease over 20 years is possible if the taxpayer can establish that is “more probable than not” that the lease will not be renewed, extended or continued (Reg. §1.178-1(b)(2).

See our Exchange Manual or give us a call us at 888-367-1031 if we can help with any questions you may have about 1031 Exchanges.

Reverse & Improvement Exchange Financing

Reverse 1031 exchanges involve the purchase of Replacement Property prior to the sale of the property being sold (the Relinquished Property) in a like kind exchange. Since you are not able to own a Replacement Property prior to selling a Relinquished Property, a taxpayer arranges for an Exchange Accommodation Titleholder (EAT) (usually the Qualified Intermediary) to take and hold title to replacement property until they find a buyer for his or her relinquished property.

Reverse Exchanges are also common where a taxpayer wants to acquire a property and construct improvements (an (Improvement Exchange) on it before taking title to the property as replacement property for an exchange. This is necessary if the value of the improvements is important for replacing with property of equal or greater value in order to avoid a taxable “trade-down.”

One question that naturally arises is the financing of the Replacement Property. Since the taxpayer's equity is tied up in the property not yet sold, how does one go about financing the purchase of the Replacement Property? Having the Qualified Intermediary (and EAT) owned by a bank helps....a lot.

See, the trouble is, the property is not in your name yet. So, secondary financing providers have issue with lending to an entity that isn't signing on the loan. If you want to finance 100% of the purchase price and wait to pay the loan down and amortize the loan after your relinquished property sells, most lenders are going to say it is impossible. Further, what happens when the property sells. The proceeds from that sale can't be assigned to the loan since they need to go to the Qualified Intermediary for 1031 exchange purposes.

1031 Corporation has the answers to these questions. As a bank-owned Qualified Intermediary, we can assist with Reverse and Improvement Exchange Financing through FirstBank's 130+ office locations throughout Colorado, Arizona and California. Since we are owned by a bank, we are very familiar with reverse exchange financing issues and can work with our bank officers. Having a Qualified Intermediary subsidiary, the bank officers are familiar with the terms and conditions of Reverse Exchange Financing and can work with you to provide this "bridge" in financing. In fact, FirstBank has a program that allows for long-term commercial financing at the time of Replacement property purchase. They even include a one-time assumption of the loan and waive any prepayment penalty for the Relinquished Property sale proceeds.

Call us today at 888-367-1031 if you are working through the mechanics of Reverse Exchange Financing or if you are having difficulty financing the purchase of your 1031 Exchange Replacement Property. We are uniquely positioned to assist you and would be happy to help expain the process in detail.

Estate Tax 2010

Many older taxpayers work to move wealth they've generated in their lifetimes from one generation to another while minimizing tax liability through estate planning. Intergenerational transfers of wealth have a significant impact on the economy and many believe that the estate tax generates costs to taxpayers, the economy and the environment that far exceed any potential benefits that it might arguably produce. Still, the political landscape today seems to indicate estate taxes are here to stay.

When dealing with estate planning, many older generation taxpayers deed property into a family partnership or LLC. Children receive an ownership percentage "gift" each year that transfers ownership over time. The parents that have acquired the real estate are able to continue to take income from the property but their heirs receive the property without estate tax (up to $1 million in lifetime gift tax exemption). If property is sold, the LLC can utilize a 1031 exchange to sell the investment property and allow the real estate portfolio to grow tax deferred. When the parents pass on, the children then have an ownership in the investment property outside the estate.

If there is not time to do this advance planning, the heirs are subject to an estate tax. This tax had been getting less concerning for many taxpayers due to the Bush tax cuts in 2001 that increased the exemption amount and reduced the tax rate. The tax was set to expire in 2010. It was expected that Congress would re-visit the estate tax before the end of 2009 and put some structure in place. They did not. Because of a limited time circumstance confusion reigns in the current estate tax landscape.

Both the estate tax and the generation-skipping transfer tax (on assets given to grandchildren) were repealed at the end of 2009. If Congress and the President do nothing, both taxes are scheduled to return in 2011 at the unfavorable rates that applied in 2001. The amount that is exempt from each of these taxes will then be $1 million and the tax on the rest will be 55%. Most tax writers do not want this to happen and talks on the estate tax are already underway.

Congress is talking about reinstating the estate tax retroactively to January 1st, 2010 and reviving the "date of death" value for inherited assets. Given the size of some estates, like the one of billionaire Dan Duncan, some are likely to challenge the retroactive imposition of the estate tax and there is a long shot that a proposal gaining ground may give estate a choice in 2010. However, there are past court cases that suggest restoring the tax this way is perfectly legal and could be upheld. Of course, the sooner Congress acts, the fewer number of large estates likely to bring such cases and the less chance these heirs will have to call the tax unconstitutional.

Members of the House of Representatives generally support a proposed $3.5 million exemption and a 45% rate on estates. There is growing support in the Senate for a $5.0 million exemption and a 35% top tax rate. We'll see, in the coming weeks and months, how this plays out and we'll certainly do our best to keep you posted of any news.

By conferring with your tax professional, and utilizing the tools of estate planning and 1031 exchanges together, one can minimize the effects of capital gains taxes on investment property. If you have are considering selling your investment property and want to defer capital gains tax using the tools of a 1031 exchange, please contact the professionals at 1031 Corporation. We have years of experience and work with accounting professionals to structure an exchange to minimize the tax impact on your investment assets. Give us a call today at 888-367-1031.