1031 Property Exchange
1031 Exchange Information
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Tax Free Exchange – 1031 Exchange Information

 

Don’ts and Misconceptions:

 

1.      You don’t have to exchange simultaneously; you have 45 days from sale to locate replacement property and 180 to purchase the replacement property.

 

2.      Like –Kind is wrong; a simple rule of thumb is exchange an income producing property for another income producing property.

 

3.      1031 Exchange is part of the  IRS Tax Code; it is not a loop- hole.

 

4.      Don't try and do the exchange this on your own; as you cannot! You must use a qualified Facilitator or Intermediary; this party must be completely independent. You cannot use your attorney, CPA or Broker.

 

5.      You cannot extend the 45 days to find or 180 days to purchase except in IRS Declared Emergencies such as Terrorist Attack or Hurricanes.

 

6.      Your tax liability is not removed; it is passed on to the next property. This can be done again and again.

 

7.      You cannot hold the money from the sale in your personal account. It must be escrowed with the intermediary.

 

 Do’s

 

  1. Exchanger   must have copies of contract and closing information and should be contacted before the sale!

 

  1. Talk to your Exchange Facilitator about the type property you can trade for, they are the experts.

 

  1. The Exchanger must identify the replacement properties with in 45 days of sale of property. Seller may identify up to 3 properties and not less than 2. This is a safety net in case there is a problem with one of the properties.

 

  1. The Exchanger  must obtain the replacement real estate within the 180 days. The Exchanger is buying the property for you, he will receive the deed. Then the Exchange will be made.

 

  1. You can  trade  for properties that have multiple owners. In other words take title after the trade as tenant in  common (an example is that a lot of Wal-Mart stores are owned this way; meaning the actual real estate, not the business.) You will be a partner.

 

  1. In the event your property is slow closing or you are having a hard time selling and the property you want to trade for may sell be fore you close, you might consider a Reverse Exchange. This is more difficult. Consult with an expert that has a track record doing  Reverse Exchange  1031Trades.

1031 Exchange Tax Free Real Estate Exchange Typical Example:

Say you own a rental property; a Duplex, Triplex, single family residence, or apartment complex. Your CPA tells you that you have run out of depreciation in other words you can’t depreciate on you tax return. It is time to sell. The total value is 20- 50% greater than when you purchased the property. You stand to pay taxes on the gain. The Selling price minus the Purchase price plus improvements, repairs etc. equals the taxable amount.

 

You will start the depreciation all over again.

If you buy a property that is higher priced than the one you sold you can finance the balance.

You cannot replace a commercial property with property intended for your personal residence unless it is multi family and you live in one unit.

Another example is if you buy a farm or ranch, the home can be homesteaded separate from the business or the income producing part. In that case when you sell that property at a later date (must be 2 years) you will pay no taxes on the home or home stead part; that will be tax exempt. You will have to do another 1031 property exchange on the rest of the property in the event there is capital gain.