Strategies for Maximizing the Tax Benefits of 1031 Tax-Deferred Exchanges, Renewable Energy Credits, and Asset Protection Trusts

Investors and business owners often ask their attorneys how they might take advantage of tax-saving opportunities. Tax-deferred exchanges of real property under Code Section 1031, Renewable Energy Credits offered under Code Section 48, and asset protection trusts that can be created in tax-friendly environments such as Delaware, are all available to the taxpayers who have the correct tax appetite and asset profile. Many attorneys do not have clarity on the mechanics and requirements of these tax-saving vehicles, which can inhibit the breadth and depth of representation they offer to their clients.

This program, presented by Sara Holland of Lewis Brisbois, will not only cover the mechanics of 1031 exchanges, renewable energy tax credits, and how best to use asset protection trusts to avoid income tax on the growth of low basis assets, but it will also highlight several important considerations for each of these tax-saving opportunities. For example, there are special rules relating to the identification of replacement property in 1031 exchanges. 1031 exchanges cannot be transacted by partnerships, which has lead to the use of TIC (tenants-in-common) agreements and “drop-and-swaps.” Renewable energy credits are subject to the passive loss rules under Code Section 469, so taxpayers must have the correct tax appetite to take full advantage of these credits. Asset protection trusts are under-used estate planning tools that can save taxpayers money by avoiding state-level income tax on growth of low-basis assets. These trusts also offer other benefits, such as protecting assets from divorcing spouses and litigants.

Learning Objectives:

1. Explore the mechanics of a Section 1031 tax-deferred exchange and “reverse exchange”
2. Gain familiarity with the characteristics that distinguish a tenants-in-common agreement from a partnership agreement, and how a “drop-and-swap” can help taxpayers take advantage of 1031 exchanges
3. Recognize the different categories of renewable energy credits, how the credits are calculated and what qualifies as “energy property”
4. Navigate the relationship between the passive loss rules and energy credits, and how to draft operating agreements for the entities that own the energy property to maximize the taxpayer’s ability to apply the tax credits to active income
5. Identify the requirements of creating an asset protection trust in Delaware and which taxpayers are best suited to take advantage of their tax-saving and asset protection benefits