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- 1031 Tax Deferred Exchanges - The Best Kept Secret in Real Estate
Investing!
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How
would you like to defer your capital gains tax liability on the sale of
your investment property? Well it can be done…legally. A little known
tool to achieving a tax deferred transaction is known as the “1031
Exchange”. This transaction is authorized by section 1031 of the IRS
code and offers investors a reliable strategy for the deferment of capital
gains when selling investment or business property.
The
IRS code states, "no gain or loss is recognized if property held for
productive use in a trade or business or for investment is exchanged
solely for property of a like kind to be held either for productive use in
a trade or business or for investment."
A
successful 1031 exchange allows the investor to reinvest 100% of the
equity from the sale of an investment or business property into the
purchase of a like kind replacement property without recognizing any
taxable gain.
As
stated above the properties being exchanged must be of “like kind”.
Like-kind is defined as real property held for business use or investment.
Any type of real property used for business use or investment will usually
qualify. An investor may sell one property and acquire three or sell four
and acquire one.
A
1031 exchange applies to all investment properties, large and small. It
works the same way for an individual selling a single family home used as
rental property as it would for a corporation selling a large shopping
center.
The
1031 exchange is not an exchange as in a barter system. Instead, it is a
typical sale and purchase that involves the same basic ingredients as any
other sale or purchase transaction, except without the capital gains.
Although
not complicated, you are required to use a professional to assist you.
These are called Intermediary’s and they are individuals or companies
that specialize in 1031 exchanges. The intermediary is responsible for
keeping you aware of your time deadlines and ensures that you do
everything to stay within IRS regulations. They also act as a middleman in
both the sale and purchase transactions.
Here
are the basic requirements of a 1031 exchange:
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Both properties must be
“like kind”. Most types of investment or business use properties
will qualify. Both properties must be held for investment or business
use
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You must use a qualified
Intermediary
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There must be an agreement
between the exchanger and the intermediary
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The
exchanger must meet certain time limitations. They include a 45 day identification period in which you
must identify a property you are intending to acquire and a 180 day period in
which to close on a replacement property.
Of
course this is a simplified overview of the 1031 tax deferred exchange
plan. Please consult with your account and a qualified intermediary prior
to initiating any formal action.
To
find out more about 1031 Exchanges in Florida contact:
OREXCO
Bruce Schnell,
Esquire, Vice President & Regional Account Manager
100 South Ashley Drive. Suite 700
Tampa, Florida 33602
(888) 437-1031
(813) 221-5512
(888) 670-1031 Fax
bschnell@orexco1031.com
www.orexco1031.com |
