Our team is ready to help you with your IRC 1031 property
exchange. We have affiliate relationships with 1031 Exchange
Specialists ready to work with us on your property exchange.
Please refer to the below helpful links explaining what the 1031
exchange is and how it works. To discuss how we can help you with your
exchange please contact
us.
What is IRC 1031 Exchange?
IRC 1031 is the IRS's way to promote economic growth b y
deferring taxes on the gains when you sell a property. In a typical
transaction, the property owner is taxed on any gain realized from
the sale. However, through a Section 1031 Exchange, the tax on the
gain is deferred until some future date. Section 1031 of the
Internal Revenue Code provides that no gain or loss shall be
recognized on the exchange of property held for productive use in a
trade or business, or for investment. A tax-deferred exchange is a
method by which a property owner trades one or more relinquished
properties for one or more replacement properties of "like-kind",
while deferring the payment of federal income taxes and some state
taxes on the transaction.
Why does the IRS provide this tax deferral?
The theory behind Section 1031 is that when a property owner has
reinvested the sale proceeds into another property, the economic
gain has not been realized in a way that generates funds to pay any
tax. In other words, the taxpayer's investment is still the same,
only the form has changed (e.g. vacant land exchanged for apartment
building). Therefore, it would be unfair to force the taxpayer to
pay tax on a "paper" gain.
When I sell my property is it tax free if I claim
IRC1031?
No, the like-kind exchange under Section 1031 is tax-deferred,
not tax-free. When the replacement property is ultimately sold (not
as part of another exchange), the original deferred gain, plus any
additional gain realized since the purchase of the replacement
property, is subject to tax.
What are the benefits of exchanging versus selling?
- A Section 1031 exchange is one of the few techniques available
to postpone or potentially eliminate taxes due on the sale of
qualifying properties.
- By deferring the tax, you have more money available to invest
in another property. In effect, you receive an interest free loan
from the federal government, in the amount you would have paid in
taxes.
- Any gain from depreciation recapture is postponed.
- You can acquire and dispose of properties to reallocate your
investment portfolio without paying tax on any gain.
What are the different types of exchanges?
- Simultaneous Exchange: The exchange of the relinquished
property for the replacement property occurs at the same time.
- Delayed Exchange: This is the most common type of
exchange. A Delayed Exchange occurs when there is a time gap
between the transfer of the Relinquished Property and the
acquisition of the Replacement Property. A Delayed Exchange is
subject to strict time limits, which are set forth in the Treasury
Regulations.
- Build-to-Suit (Improvement or Construction) Exchange:
This technique allows the taxpayer to build on, or make
improvements to, the replacement property, using the exchange
proceeds.
- Reverse Exchange: A situation where the replacement
property is acquired prior to transferring the relinquished
property. The IRS has offered a safe harbor for reverse exchanges,
as outlined in Rev. Proc. 2000-37, effective September 15, 2000.
These transactions are sometimes referred to as "parking
arrangements" and may also be structured in ways which are outside
the safe harbor.
- Personal Property Exchange: Exchanges are not limited
to real property. Personal property can also be exchanged for
other personal property of like-kind or like-class.
For more information please visit the link below or
contact a 1031 Exchange Specialist:
IRS 1031 information
Source of information for this page:
http://www.1031.org/
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