What Is A 1031 Exchange?
A 1031 Exchange refers a provision in the Internal Revenue Code which gives sellers of real property the ability to defer gains upon a sales by acquiring a replacement property at a purchase price equal to or greater than the proceeds realized from a sale. While there are some exceptions (i.e. reverse 1031 Exchanges, 200% Rule, etc.), a seller generally identifies up to three (3) properties that it may be interested in purchasing within forty-five (45) days of the sale of the property that is owned. The seller must then close on the purchase of at least one (1) of the identified properties within one hundred eighty (180) days of the sale. To the extent that any or all of the proceeds are not rolled over into the purchase within said time period, the sales transaction will be taxable at capital gain rates.
What Is A Mortgage Assignment?
New York has a very expensive mortgage recording tax (up to 2.80% in the City of New York) such that on every $1,000,000.00 in mortgage money borrowed, there is a $28,000.00 tax imposed, merely for the privilege of the lender being able to record the mortgage. To the extent that there is already existing debt on the property, a party either purchasing the property, or refinancing property that it already owns, can arrange for either an assignment of the existing debt on the property from the existing lender to any new lender, or a consolidation of the existing debt if a party is refinancing with its current lender. This avoids mortgage recording tax on the then outstanding principal balance of the loan, leaving only the obligation to pay mortgage tax on the new money borrowed. For example, assume a $10,000,000.00 mortgage where $8,000,000.00 of debt exists on the property. Without the assignment or consolidation of the existing debt, a mortgage tax of $280,000.00 would have to be paid on the $10,000,000.00 loan. With an assignment or consolidation of the existing debt of $8,000,000.00, the mortgage tax is reduced to $56,000.00; a savings to the borrower of $224,000.00.