1031 Exchange - How you can utilize the 1031 exchange tax code…
Whether you are consolidating several properties to purchase a larger one, or are just looking to grow your tax deferred assets, performing a 1031 exchange is one of the best ways to preserve the capital gained on your investment and avoid taxes until you decide to sell for cash. Here are the basic rules you will need to understand before getting started.
Investment properties only
- May not be utilized for your personal residence.
Must be a like-kind property
- This guideline may be more broad than you would imagine. The property must be the same in nature, character, or class.
A new property must be identified within 45 days of the sale of the old property
- You may designate three properties, but you must close on one of them within the allotted period.
Must close in six months
- One or more properties being purchased must close within 180 days from the sale date of the old property.
Third party to handle funds through the entire transaction
- An intermediary will handle the money throughout the sale of the old property through the purchase of the new property, so the money will never be in the hands of the owner(s).
Owners on the title must be the same
- If multiple investors share title, all must be included in the purchase of the new property.
Reinvestment must be equal or greater amount
- If there is any cash leftover it will be taxed as capital gains.
During a Reverse Exchange, properties must be under different names
- If the new property has been found before the sale of the old property is complete, a qualified intermediary will purchase and hold title of the new property until the old property is sold, and monies from the sale will be applied to the purchase of the new property from the intermediary.
Each 1031 exchange situation is unique with its own set of facts and circumstances. If you have questions about the process or need some assistance getting started, give us a call without any obligation. We can help walk you through the process and find properties suitable for your situation.
Disclaimer: Consult your legal council and/or financial advisor for more information about your specific situation and needs.