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- 1031 Tax Deferred
Exchanges - The Best Kept Secret in Real Estate Investing! -
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. 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:
- 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
- You must use a qualified Intermediary
- There must be an agreement between the exchanger and the
intermediary
- 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 accountant and a qualified intermediary prior
to initiating any formal action.
To find out more about 1031
Exchanges contact:
OREXCO
1105 Sanctuary Parkway - Suite 450
Alpharetta, GA 30004
(866) 330-1031
(770) 569-1294
(770) 569-1316 Fax
rhollinger@orexco1031.com
www.orexco1031.com |
