Our mission is to strengthen American Businesses and Entrepreneurs through business education. The real estate business funds an endowment for the creation of school of business in the near future.  In addition, our organization funds other business educational organizations and events, as well as partners with other organizations that help create jobs and start new businesses. . . (see Company Profile for more information)

The cash benefits from a 561 Exchange typically exceed the mortgage amount. In most cases, the mortgage must be paid off at, or prior to, closing by the seller.

SeedAmerica also partners with other environmental organizations offering transfer of 100% of the environmental risk and/or liability from the seller.

Most nonprofits are not in the business of owning and managing properties, especially large commercial industrial properties with enormous carrying and redevelopment costs. Many of these properties also require major financing and a whole different set of management skills. SeedAmerica can help companies by acquiring, owning, and redeveloping these properties while using any long-term profits to continue our business educational programs, as well as offering lease subsidies and incentives to help businesses succeed.

A 561 Exchange can be transacted on any property, including residential, commercial, land etc. However, SeedAmerica focuses on properties where the Fair Market Value (FMV) is more likely to give the owner a greater cash benefit in tax benefits than selling it at list price (see 561 Exchange Program for more information).

Additionally, the 561 Exchange allows property owners to fully depreciate a property, taking advantage of all the tax benefits.

The 561 Exchange, on the other hand, exchanges a property for cash through a tax deduction. This exchange primarily impacts income tax vs. capital gains tax. SeedAmerica focuses on properties that could generate more cash in the owner’s pocket as compared to selling it at list price.

1. The right seller – In order for the seller to receive the full cash benefit of the 561 Exchange, the seller must have an annual taxable income equivalent to 40% of the value of the property. This is if the income or loss on the property can be traced back to an individual(s) on tax returns via a proprietorship, partnership, limited liability company, S-corporation and so on. For example, with a $1,000,000 property, the seller should have, or expect to have, at least an average annual income of $400,000 over the next 5 years because of the IRS limits and rules.

   C-corporations, on the other hand, must have an annual taxable income equivalent to two times the value of the property. For example, with a $1,000,000 property, the seller should have or expect to have at least an average annual income of $2,000,000 over the next 5 years or $10,000,000 to write off the entire amount in 1 year.

2. The right property – The 561 Exchange works particularly well with large industrial and commercial properties in secondary and tertiany markets.  It even works with large office complexes and special facilities. If the property is in a hot real estate market where selling it for top dollar would only take a few months, the 561 Exchange may not be the best option as list price and FMV should be relatively equivalent.  An attractiveness benefit of a 561 Exchange for many seller is freedom from high carrying costs over a prolonged period of time.

   Though the 561 Exchange will work for properties that have very little depreciation, it is best used on almost fully or 100% depreciated properties.

3. The right buyer – The right buyer needs to be a 501(c)3 nonprofit organization with tax exempt status from the IRS and have plenty of experience with these transactions.

   Additionally, if a nonprofit does not want to keep and manage the building, which includes most nonprofits, then they will sell it and if it’s sold below appraised value within 24 months of the transaction, the IRS could demand an adjustment to the value that the seller received. SeedAmerica, however, keeps the properties and manages them for the long-term, which helps fulfill our mission to build educational programs in the future.

   SeedAmerica's reputation in this industry is paramount. It is in our best interest to ensure that the sellers are properly complying with the standards of the IRS. Therefore, we have developed our own internal audit procedures and we have personnel who ensure compliance

SeedAmerica has closed deals in as little as 30 days, because the seller was motivated.

If the 561 transaction happens at least 1 year after the purchase, the owner may use a 561 appraisal to determine value, but the owner will not receive the full benefit of getting twice the tax advantage as described in the previous question. However, the owner may not want to wait 30 or so years to receive the full depreciation in order to receive twice the tax benefit.

SeedAmerica focuses on properties where the owners are really motivated to dispose of the property and not willing to wait for the right buyer while continuing to pay carrying costs and not focusing on their core business.  Large properties in difficult or even in good secondary markets can sit for a long time until a buyer can be found.  List price is generally adjusted below FMV to help move the property quickly.  In these circumstances, the FMV appraisal will be higher and sometimes much higher than asking price.

As in any IRS transaction, if the rules are not followed, the IRS can contest them, which could result in a challenge of the value of the 561 appraisal or tax deduction.  This further illustrates why companies are advised to work with trained experts of the 561 Exchange transaction, to ensure that the transaction complies with the standards and regulations set by the IRS. 

We have found that our clients received the most comprehensive guidance through their 561Exchange transactions from SeedAmerica's 561 Specialists. Many of our clients engaging in 561Exchange transactions have also received confirming advice from reputable accounting firms.

There is no cost to perform a 561 Exchange analysis.

SeedAmerica has done 561 Exchange transactions with widely known and very large companies like ConAgra Foods, to other billion dollar companies like FMC Technologies, to wealthy billion dollar families like the Pritzker family (owner of the Hyatt Hotels), to foreign corporations like Chapel-Thorpe, to medium sized companies like Essex Electric, to smaller companies like Interdyne Inc., etc.  The key for these companies was having a tax liability and a property with the right fit.