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A 1031 is a section code of the IRS which has been around since the 1920's, 1031 exchanges are the most commonly used tax deferral tool used in real estate. The d

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

eferral treatment of capital gains given by a 1031 exchange gives a seller of property the best vehicle for preserving and building real estate wealth. The provis

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

on of the Internal Revenue Code Section 1031 allows property owners to exchange their property for other like kind property without any recognition of capital gai

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ns liability or recapture of depreciation at the time of the sale.

Most people who invest in real estate or own property used for business purposes are concerned

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

with the tax ramifications involved in the sale of their properties. If you are one of these people, or if you are considering investing in real estate, you shoul

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

know about the Internal Revenue Service provision for exchanging one real estate investment for another. This real estate transaction is referred to as a 1031 Ta

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

x Deferred Exchange, and it can help real estate investors increase their assets while deferring taxes.

This means that a real estate investor can defer, or poss

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

bly even avoid altogether, federal, and in many cases state, capital gains taxes. When this is considered, the benefits of a 1031 Tax Deferred Exchange are obviou

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

s as compared with the outright sale of an investment property. With proper planning, an investor can continue to exchange properties for those of greater value.

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

hey will continue growing their assets while deferring, and in many instances avoiding, taxes.

What is the purpose of a 1031 exchange?
A 1031 tax deferred e

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

change allows you to roll-over all of the proceeds received from the sale of an investment property into the purchase of one or more other like-kind investment pr

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

operties. At closing, proceeds are transferred to a third party--called a facilitator or qualified intermediary--who holds them until they are used acquire the ne

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

property.

Exchanges Allow You to Delay Capital Gains Taxes
Capital gains taxes are deferred if all of the exchange funds are used to purchase like-kind inv

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

estment property. The deferment is like getting an interest-free loan on the tax dollars you would have owed for a cash sale. More equity is retained, and that

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

elps you move into properties of higher value each time you perform a 1031 exchange.

To understand the powerful protection an exchange offers, consider the follo

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

ing: An investor has a $500,000 capital gain and incurs a tax liability of approximately $125,000 in combined taxes (depreciation recapture, federal and state ca

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

pital gain taxes) when the property is sold.

If the investor obtains a cash on cash return of 8% with either an exchange or a purchase, reinvesting $500,000 yiel

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

s $10,000 more each year than investing the after tax $375,000. The chart below shows the differences in investment return. Foreground is return on $375K investe

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

d at 8% and background is return on $500K, which would be available with an exchange. Difference at only 7 years is nearly $220K.

Thus as you can see from the ab

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ve, 1031 exchanges are one of the best ways you can invest in real estate and avoid or reduce the amount of capital gains taxes you are required to pay to the IRS

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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