| | 1031 Tax Exchanges - What are they and can I do one? |  | A 1031 exchange lets you swap one investment property for another "like-kind" property which defers you from paying capital gains tax. Basically, you're reinvesting your money into real estate without being taxed currently.
Here's the simple version of an 1031 Exchange:
You sell your old investment property.
You use the proceeds of that sale to buy a new investment property within a specific timeframe (strict rules apply). Here are the 3 rules for a fully tax deferred exchange. 1. The new investment purchase price should be greater or equal to the net sales price of the property that was sold (buy equal or up in value). 2. Net equity greater or equal to the equity in relinquished property (spend all of the equity). 3. Debt greater or equal to the debt on the relinquished property.
You don't touch the money from the sale, it goes directly into a qualified intermediary account that holds it for you.
If you follow the rules, you postpone paying capital gains tax until you eventually sell the new property.
Important things to remember..........
There are strict rules about what qualifies as "like-kind" property.
The following types of real property are ALL considered to be like kind and can be exchanged for each other: Land, commercial buildings, stores, offices, warehouses, ranches, farms, rental homes, apartments, tenancy-in-commom interests, easements, perpetual water rights (when real property under state law), leases of 30 years or more (including options), condominiums and timberland.
You have a limited time frame to complete the exchange.
It's best to consult with a tax professional to ensure you qualify and follow the rules.
If you want to find more out about exchanging property please call me to discuss. I can also set up an appointment with my tax exchanger to go more in depth with you. |
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