My Services1031 Exchange
1031 Tax Deferred Exchange
Wouldn't it be great to defer paying taxes on the profit you make on a property? There's a way, and it's called the 1031 tax deferred exchange. Under the IRS's code, you can defer capital gains (or losses) due upon selling certain types of property, which means you can defer any capital gains taxes due.
There must be at least two properties in an exchange; one or more relinquished property(s) and one or more replacement property(s).
One property may be exchanged for several, or several properties may be exchanged for one. Examples of eligible property types include rental homes/condos/apartments, raw land, farm land, retail, office, warehouse, industrial.
Steps to accomplish a 1031
- Discuss a 1031 tax deferred exchange with your tax and/or legal advisors.
- Enter into a 1031 exchange written agreement with a qualified intermediary. You can't receive the proceeds of the sale of the old property - if you do, you won't qualify for the 1031 exchange. Instead, sellers usually assign the interest in the relinquished property to a qualified intermediary before closing. Then, proceeds of the sale transfer from the closing agent to the qualified intermediary, who holds the funds until they are needed to buy the replacement property. After the replacement Colorado property closes, the qualifying intermediary gives the property back to you. Since this amounts merely to an exchange of properties - with no money received to pay taxes - no gain or loss is recognized, and taxes on any capital gains are deferred.
- Sell the relinquished property and include the Cooperation Clause in the Purchase and Sale Agreement, which states that the buyer is aware that the seller's intention is to complete a 1031tax deferred exchange and agrees to cooperate in such an exchange.
- Identify property(s) within 45 days of closing, and send written identification of the address(s) or legal description(s) to the qualified intermediary. Everyone who signed the original exchange agreement must sign this document.
- Buy replacement property(s) within 180 days of closing on the sold property. The property must be of equal or greater value, and all of the proceeds from the sold property must be used to acquire the replacement property. Properties exchanged must be “like-kind,” in other words one investment or income producing property for another investment or income producing property in the United States. Include the Cooperation Clause. An amendment is signed naming the qualified intermediary as buyer, but the deed is from the seller to you. Note: The 45 days and 180 days run concurrently, and both start the closing date of the sold/relinquished property.
- File form 8824 with the IRS when filing taxes, as well as the similar state document.
You can also sell your personal residence where you lived at least 2 years and one day, in which no capital gain is due below $250,000 for a single person or $500,000 for a married couple, and move into a former rental property in order to turn it into a new personal residence to avoid capital gains on.
National Qualified Intermediaries
Asset Preservation, Inc.
The 1031 Exchange Experts
WaMu 1031 Exchange
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