|
1031 TAX DEFERRED EXCHANGES: "AN
OVERVIEW OF SEVERAL REQUIREMENTS FOR TAX DEFERRAL"
WHAT IS IRC SECTION 1031?
Section 1031 of the Internal Revenue Code allows an owner of investment
property to exchange property and defer paying federal and state capital
gain taxes (20%+ applicable state taxes) if they purchase a
"like-kind" property following the rules and regulations of the
Internal Revenue Code. This allows investors to use all of their proceeds
from their sale to leverage into more valuable real estate, increase cash
flow, diversify into other properties, reduce management or consolidate into
one property.
WHAT IS "LIKE-KIND" PROPERTY?
There is some confusion regarding what type of property qualifies for a
§1031 tax deferred exchange. The Internal Revenue Code Section 1031 states
that "no gain or loss shall be recognized on the exchange of property
held for productive use in a trade or business or for investment if such
property is exchanged solely for property of like kind which is to be held
either for productive use in a trade or business or for investment."
"Like-Kind" property can include, but is not limited to, any of
the following, provided it is held for investment:
Single Family Rental
Duplex
Apartment
Commercial Property
Raw Land
For example, a single family rental can be exchanged for raw land, or
apartments or a commercial building. In addition, properties can be
exchanged anywhere within the United States.
DOES AN EXCHANGE NEED TO BE SIMULTANEOUS?
No, contrary to what most owners envision, a §1031 tax deferred exchange is
rarely a two-party swap.Most exchanges are delayed exchanges, whereby the
Exchanger has 180 days between the sale of the relinquished property and the
closing of their replacement property. They must identify the potential
replacement property(s) within 45 days from closing on their relinquished
property.
WHEN IS A §1031 EXCHANGE APPLICABLE?
It is applicable whenever a property owner intends to SELL any property that
is not their primary residence (and falls under the definition of
"like-kind") and plans to BUY another "like-kind"
property within 180 calendar days following the closing of their
relinquished property.
Paramount to any exchange is a competent and experienced Intermediary. Asset
Preservation is the entity which structures, consults, guides and documents
the exchange transaction from beginning to end.
Back to Table of Contents 1031
Exchange Information
|
