1031 Exchanges

1031 Exchanges

 

1031 Exchanges
 
What is a 1031 Tax Deferred Exchange?
 
Generally, when individuals sell real estate, they have to pay tax on the gain from the sale of the property. This gain is caused either by the property appreciating over time or by depreciation deductions taken by individuals for tax purposes. With a 1031 Tax Deferred Exchange, your gain is carried forward to the replacement property. If you sell the replacement property in the future, without exchanging, the gain would be taxed at that time.
 
What kinds of properties are eligible?
 
Section 1031 of the Internal Revenue Code allows for a taxpayer to exchange one property for another and defer payment of state and federal capitol gains taxes, as long as both properties are of "like kind". That is, the properties must either be held for productive use in a trade or business or be held for investment.
For example, bare land may be exchanged for a ski condo, rental home or apartment building and vice versa. It cannot, however, be exchanged for a personal residence because a personal residence does not qualify for tax deferral under Section 1031.
 
Must the properties be located in the same city or state?
 
Exchange properties can be located in different states within the USA. For instance, a beach house in Florida may be exchanged for a ski condominium in Jackson Hole.
 
Does the exchange of properties have to be done simultaneously?
 
The sale of one property and the purchase of another for a 1031 exchange can be accomplished with a Simultaneous 1031 Exchange or Delayed 1031 Exchange. With a "Delayed Exchange" there are time constraints that must be met in order to qualify for tax deferral. The Exchanger has 45 days from the sale of one property to properly identify a replacement property and 180 days to complete the acquisition of the replacement property. If you find a property you would like to acquire before you have been able to sell your current property you would be a candidate for a Reverse 1031 Exchange.
 
Is a 1031 Exchange 100% tax deferred?
 
For an exchange to be 100% tax deferred, the Exchanger must 1.) purchase a new property (properties) that is (are) of equal or greater value and 2.) reinvest all of the net proceeds from the sale of the old property.
It is perfectly acceptable to take cash ("boot", IRS term) out of a 1031 exchange and pay taxes on that amount.
Note: the Exchanger must acquire debt that is equal to or greater than the debt that was paid off. If the Exchanger does not acquire equal or greater debt on the new property, they are considered to be "Relieved of Debt", which is perceived as taking a monetary benefit out of the exchange. Therefore the debt relief portion is taxable, unless offset by adding equivalent cash to the transaction.
 
How would I do a 1031 Tax Deferred Exchange?
 
One of the requirements of a 1031 Tax Deferred Exchange is that you use a Qualified Intermediary ("QI"). The QI cannot be someone with whom you have a prior business or family relationship. Thus, your real estate agent, your accountant, your brother, for example, are disqualified. You must use an independent organization whose only contact with you is to serve as the QI. The QI prepares the exchange documents, holds the cash proceeds from the sale (required in order to qualify for a 1031 exchange), and should answer any questions you have during the exchange. Another requirement is that the person or entity that holds title on the old property must be the person or entity that takes title to the new property. Examples of entities holding property are trusts, corporations, partnerships, and LLC's.
Exchanging can save you significant tax dollars. It is an inexpensive and simple process if you have the right team working for you. Your real estate agent should know and understand the contract verbiage and the time constraints of the 1031 exchange.
 
What Teri's clients are saying:
 
When we decided to sell our Cleveland, Ohio rental property in “exchange” for a rental property in Jackson Hole, we searched the internet for a realty source knowledgeable in 1031 exchanges and came across Teri McCarthy’s name.  From the first call I knew she would be wonderful to work with. So we booked our flight to Jackson Hole and began our property search.  In two and a half days we narrowed down the many options, and continued to work with her once we got back home.  Teri was a great advocate and extremely helpful during the long-distance negotiations.  We now own a town home at Snow King resort, and look forward to coming out to Jackson at least once a year.  And, of course, we stay in touch with Teri year-round.  She’s a fantastic realtor – and now a great friend as well.  Terri and Steve M.
 
Teri, Thanks for being so professional and helpful during this transaction. You went beyond the call of duty many times and I appreciate all you have done. It is nice to know that should we choose to find another vacation home in Jackson we have a real estate professional that knows the market well.
Best to you and yours! Jac S.
 
1031 Qualified Intermediaries
 
Investment Property Exchange, Inc
8450 E. Crescent Pkwy., suite 410
Greenwood Village, CO  80111
877-775-1031

www.ipx1031.com

Asset Preservation, Inc. 
Granite Bay, California 
800-282-1031 

Whether you’re relocating to Jackson Hole, or want to buy a vacation home, primary residence, second home, resort property, condo, townhome, land, horse property, Teton view home, golf estate or ski-in/ski-out home, you’ll find all Jackson, Wilson, and Teton Village real estate listed for sale here. You need an advocate, a buyer's agent to represent your best interest, with confidentiality, Teri will you acquire a Jackson Hole property for your 1031 exchange, investment, second home or future retirement.  Take advantage of the many tax benefits of Wyoming residency. Already own a home in Jackson Hole?  Interested in knowing the value in today's market? Thinking about selling? Talk with Teri about creative marketing to attract qualified buyers for your home.  Teri McCarthy is the Broker/Owner of Jackson Wyoming Real Estate.  Teri holds the designations of ABR (Accredited Buyer Representative), CRS (Certified Residential Specialist) and RSPS (Resort and Second Home Specialist) matching buyers and sellers with Jackson Hole properties since 1989. All rights reserved 2015 Teri McCarthy Inc and Teri McCarthy, Realtor, ABR, CRS, RSPS.