1031 Exchange
Have you ever felt like you missed the boat? Has everyone taken advantage of a great deal and left you standing on the shore waving goodbye? Well, that’s the feeling that a lot of my investor clients have after learning about 1031 tax deferred exchanges. Investors buy real estate to earn a profit. Decisions are made to determine the effects of location, potential rents and expenses, financing and other factors to realize as much of a profit as possible. Once the profit is made, the typical investor sells his property, pays his taxes and reinvests in other real estate.
The vast majority of real estate investors seldom make use of one of the most valuable techniques for increasing and preserving profit we have available: The Tax Deferred Exchange. Like all things IRS, the 1031 Exchange seems mysterious and complicated, but the truth is that the complicated parts are handled by a 1031 facilitator. All you have to do is have your ducks in a row: have a property to sell, identify and purchase another and be prepared to act quickly when it happens. You will need the services of a qualified intermediary (Q.I.).
This week we had F. Moore McLaughlin CPA, Principal of All States 1031 Exchange Facilitator, LLC. to help shed some light on this often overlooked wealth management tool. Since there are no licensing requirements for a QI, you should be careful when selecting a facilitator.
In general, there are several basics to consider:
1: All proceeds go to an escrow fund managed by a qualified facilitator.
2: You have 45 days from settlement to identify replacement properties.
3: You can identify up to three properties at fair market value or you can identify more properties if their total fair market value is not more than twice the value of the relinquished property.
4: There must be an actual purchase, generally within 180 days after the original property was transferred.
5: The replacement property cannot be for personal use.
6: If the value of the replacement property is less than the value of the relinquished property, then there may be taxable profits.
Have I peaked your curiosity? Want to know more? All States 1031 has ALL the answers. Click HERE to request a complimentary educational guide to “Building Wealth Through 1031 Exchanges”.
This week’s Real Estate Insight:
A tax exchange defers taxes, it does not eliminate them. You could need settlement papers 30 years down the road, so don’t throw out any pertinent papers and as always, consult an expert before attempting such an undertaking.