Also known as:
1031 Property Exchange
IRC 1031 Tax Deferred Exchange
Internal Revenue Code 1031 Tax Deferred Exchange
IRS Code 1031 allows for an investor of real property to defer his capital gain upon the exchange of investment property of a like kind. In other words, you can trade an existing property for a new property or properties without having to pay taxes on your gain. The tax liability is deferred into the new property(ies).
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In plain English: If you own an investment property (real estate of any kind) which has served its purpose and you would like to upgrade to a newer, more profitable property, a 1031 Exchange is of interest to you. Let's say you own a rental property, which you purchased in 1990 for $100,000. Now you found a better property, which could give you more rental income or a better return. But due to appreciation, your old property has gone up in value and is now valued at $150,000. Under normal circumstances you would need to pay taxes on your capital gain when you sell the old investment property.
Not so if you do a 1031 Tax Deferred Exchange. You do not pay capital gain at the time of sale, but you defer the capital gain. The advantage is that you can use your $50,000 in capital gain to purchase a more expensive property. And of course if you upgrade to a more expensive investment property you should get a much better return on your investment than on your old investment property.
In short, the advantage of a 1031 Exchange is that you can defer your capital gain until the end of your life, as long as you do not sell your investment property. And you can do multiple 1031 exchanges over the years and keep deferring your capital gain until you either pass away or finally sell your investments and do not continue buying other investment properties.
Interested? Good, because this is a great opportunity for real estate investors to trade in their old income producing properties for newer, more profitable income properties without having to pay taxes on their capital gain (they defer).
But there are plenty of things you need to know and obey in order to defer your capital gain. Professionals should handle a 1031 Property Exchange. If you don't want to spend big bucks to have an attorney prepare that for you then get a professional Real Estate Agent who knows how to handle 1031 Exchanges. Have a real estate agent sell your old property and have him find a new, more profitable one. We would be glad to find you a suitable, knowledgeable Real Estate Agent in your hometown or anywhere in the country. And our service is Free. Simply fill out a simple referral form and we will connect you to a qualified agent. Click here to go to the form.
What is a like kind property?
At this time, like kind property held for an investment or for a productive use in trade or business. The Taxpayer is permitted to exchange an income producing property for vacant land and vice versa. In fact, the exchange can result from any combination of real property for real property.
How long do I have to identify my replacement property?
The Taxpayer has 45 days from the close of the relinquished property to identify the replacement property and 180 days, also from the close of the relinquished property, to close on the identified replacement property.
How many replacement properties can I identify?
The Taxpayer may identify three properties of any value or four or more replacement properties whose total value does not exceed 200% of the total value of the relinquished property.
Do I have to acquire a property of equal or greater value?
To accomplish a total tax deferral, the property(ies) you acquire in the exchange should be equal or greater in value, debt, and equity. If your replacement property is lesser in any of these areas, you will have a tax liability on the difference.
When do I have to set up my exchange?
You should talk to a qualified real estate agent first. However, once the relinquished property has gone to contract, an Intermediary should be contacted to set up the exchange account. The real estate agent we refer you to will be able to name you one or more qualified Intermediaries in your city. Under no circumstance can the relinquished property close before the exchange agreement has been signed.
There are several aspects on a 1031 Exchange, which need to be completed and obeyed before you get started. We believe that the easiest way is to select a qualified real estate agent first to assist you. That agent will be able to help assist you in selecting properties and to find the needed Qualified Intermediary. Since the law may differ from state to state we gladly refer you to a competent, knowledgeable agent in your city (anywhere in the country). Just complete a simple contact form to get started. Our referral is free to you and you are not required to act immediately. Complete the contact form now.
RealEstateColorado.Net, Inc. is available to assist Exchangers and their advisors with their exchange strategies. The Exchanger is always advised to discuss the intended exchange with their legal or tax advisor. RealEstateColorado.Net, Inc or it's Brokers cannot provide advice regarding specific tax consequences. Investors considering an IRC §1031 tax deferred exchange should seek the counsel of their accountant and attorney to obtain professional and legal advice.
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