The “Green Movement” has quickly gone from fad to trend to global initiative. In the U.S., corporations as well as commercial and residential property owners are being challenged to find ways to embrace ‘Green Initiatives’ in response to demands for greater sustainability, social accountability and profitability.
Guided by the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) certification program, energy efficiency, resource conservation and environmental sustainability are increasingly important factors in maximizing asset value. Of course, many of today’s commercial buildings are anything but green. Outdated heating, ventilation and air conditioning (HVAC) systems can result in continually increasing operating costs. Antiquated and drafty windows, leaking pipes, old asbestos panels, and new patches of mold can create a costly environmental nightmare.
For those investors and businesses saddled ‘brown’ properties, one approach is to undertake expensive renovations, hoping upgrades to building and systems eventually pay off in terms of higher rents and lower operating costs. But many property owners and corporations are now also using a 1031 Tax-Deferred Exchange strategy to quickly divest themselves of environmentally-outdated properties and acquire modern, energy-efficient ones thus solving financial and ‘green’ needs.
How Does It Work?
Under IRS Code Section 1031, a taxpayer can defer payment of capital gains, depreciation recapture and other state taxes on the sale of investment or business property provided the proceeds are used to purchase replacement property within certain timeframes. To qualify for a Safe Harbor Protection tax deferral, proceeds must be held by a Qualified Intermediary (QI) between the sale of the relinquished property and the purchase of the replacement property.
For property investors and corporations considering exchanging their investment residential or commercial properties, “going green” offers a host of highly tangible benefits: