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RE/MAX Accord
Realty
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Fax: 925-425-3294 |
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1031 exchange information
WHAT IS IRC SECTION 1031?
Section 1031 of the Internal Revenue Code allows an owner of investment
property to exchange property and defer paying federal and state capital
gain taxes (15%+ applicable state taxes) if they purchase a like-kind
property following the rules and regulations of the Internal Revenue
Code. This allows investors to use all of their proceeds from their sale
to leverage into more valuable real estate, increase cash flow,
diversify into other properties, reduce management or consolidate into
one property.
WHAT IS LIKE-KIND PROPERTY?
There is some confusion regarding what type of property qualifies for a
1031 tax deferred exchange. The Internal Revenue Code Section 1031
states 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 if such property is exchanged solely for property of like
kind which is to be held either for productive use in a trade or
business or for investment. Like-Kind property can include, but is
not limited to, any of the following, provided it is held for investment:
Single Family Rental
Duplex
Apartment
Commercial Property
Raw Land
For example, a single family rental can be exchanged for raw land, or
apartments or a commercial building. In addition, properties can be
exchanged anywhere within the United States.
DOES AN EXCHANGE NEED TO BE SIMULTANEOUS?
No, contrary to what most owners envision, a 1031 tax deferred exchange
is rarely a two-party swap. Most exchanges are delayed exchanges,
whereby the Exchanger has 180 days between the sale of the relinquished
property and the closing of their replacement property. They must
identify the potential replacement property(s) within 45 days from
closing on their relinquished property.
WHEN IS A 1031 EXCHANGE APPLICABLE?
It is applicable whenever a property owner intends to SELL any property
that is not their primary residence (and falls under the definition of
like-kind) and plans to BUY another like-kind property within 180
calendar days following the closing of their relinquished property.
Paramount to any exchange is a competent and experienced Intermediary.
Asset Preservation is the entity which structures, consults, guides and
documents the exchange transaction from beginning to end.
Cost Segregation Study information.
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