"The IRS is on your side with 1031 Tax Exchanges"

The sale of a business or investment asset, whether it is real estate or capital equipment, can create a large tax liability. A properly structured tax deferred exchange under Internal Revenue Code §1031, however, allows businesses and individuals to defer the recognition of the capital gains or other taxes associated with the sale of most business or investment assets, as long as new assets are purchased to replace the existing assets. In general, most tax-deferred exchanges are structured either as a real property or a personal property exchange. Real property exchanges include only interests in real property, while personal property exchanges encompass virtually all other types of property.

To be eligible for the favorable tax treatment afforded by an exchange, the property or business asset to be disposed of must have been held by the client for productive use in a trade or business, or for investment purposes, and be exchanged for like-kind replacement property that will be held by the client for similar purposes. With few restrictions, whether an exchange involves a parcel of real property, an airplane, a broadcast spectrum, or a fleet of cars, exchanges allow businesses and individuals the flexibility to sell property to whomever they wish, and to buy new property from whomever they wish.

There is no requirement that property be “swapped” to be eligible for an exchange nor do exchange transactions require any significant changes to the terms of the sale and purchase agreements. By utilizing an exchange clients are able to maximize their capital by deferring the taxes that would otherwise be incurred on an outright sale of their property and use the entire amount of the equity from the exchange to acquire substantially more replacement property. Properly structured and administered, an exchange becomes an invaluable tax saving tool and an integral element of the business cycle.

"Can a buyer use a 1031 exchange? Lets See."

1031 tax deferred exchanges can only be used for vacant land, rental property or property used for investment.  

As a result, 1031 exchanges can only be used to purchase a new home if the new home is being used for rental or investment purposes.

1031 Exchanges made simple

Under normal circumstances, when you sell a property you have to pay taxes on the gains you make.  Gains are usually caused by the property appreciating in value during its ownership.

A Section 1031 tax deferred exchange is named for the Internal Revenue Code Section that it refers to.  This allows an exception to the capital gains tax. 

When you sell your investment real estate and replace it with a different investment property, and complete an exchange, you can defer payment of the capital gains tax normally required on these sales.

If you use the money from the sale of an investment property to buy more investment property, a 1031 Exchange provides more proceeds for your next investment property than you could gain through the re-investment of after-tax proceeds.  

Make sense?  Some astute investors have been able to start by buying investment homes and end up owning apartment buildings, all through tax-deferred exchanges.

A 1031 Exchange is not a tax loophole.  It is a real-life section of the Internal Revenue Code, written by Congress, to allow anyone who meets all the requirements to sell their property and defer paying taxes on the gain.

You cannot have actual control of any of the proceeds received from the sale of the old property.  You cannot get the check from the sale.  The law requires all money to be held by a Qualified Intermediary. You cannot have an associate or employee, your attorney, broker or CPA hold the proceeds, nor can you leave the proceeds in escrow until the second property is purchased.

You have 45 days from the date of closing on the old property to identify a list of properties that you want purchase as the new property.   From the date of closing, you have 180 days to close on one or more of the properties from your 45-day list.

The titleholder on the old property must be the same titleholder on the new property.

This strategy is very popular today with the real estate market so strong.  These exchanges are also becoming more common among pre-retirees who buy rental homes where they intend to retire one day.   Maybe something you should consider in your own retirement or investment plans.

"The key to a successful exchange"

When you are selecting a Qualified Intermediary to assist you in your next tax deferred exchange, whether it is the exchange of a single real or personal property asset or for your ongoing multiple asset or fleet exchange program, select the Qualified Intermediary with the highest level of security, expertise and service in the industry to be your key to a successful exchange–

To learn more about 1031 Exchanges and work with the company that I recommend and where most of this information came from please click here.

Here is a list of other companies dealing with 1031 exchanges

www.irs1031exchanges.com/manual/book.shtml (read about exchanging)

www.ree.com (1031 exchange facilitators)

www.ipx1031.com (1031 exchange facilitators)(the one I recommended above)

www.exchangers.com (1031 exchange facilitators)

www.1031ri.com (1031 exchange facilitators)

www.1031pros.com (1031 exchange facilitators)

www.starker.com (1031 exchange facilitators)

www.1031it.com (1031 exchange facilitators)

www.ixg1031.com/updates/tic/html (1031 exchange facilitators)