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Will Schroeder - Phone: 702-338-0597 - Email: will@infolv.com
PRIME
PROPERTIES OF LAS
VEGAS
WILL
SCHROEDER &
ASSOCIATES
1-888-252-3422
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1031 Exchanges
SAVE TAXES * ON
REAL ESTATE TRANSACTIONS
CONSIDER A 1031 TAX DEFERRED EXCHANGE
* www.infolv.com & Las Vegas First Realty cannot provide advice regarding specific tax consequences. Investors considering an IRC 1031 tax deferred exchange should seek the counsel of their accountant and attorney to obtain professional and legal advice.
THE TAX DEFERRED EXCHANGE
The tax deferred exchange, as defined in Section 1031 of the Internal Revenue Code of 1986, as amended, offers real estate investors an opportunity to build equity and save taxes. By exchanging property, the investor can dispose of their current investment property, use the equity in that property to acquire replacement investment property, defer the capital gain tax that would ordinarily be paid, and leverage all of their equity into the replacement property. However, in order to defer the capital gain tax, the investor: (a) must acquire "like kind" replacement property and (b) cannot receive cash or other benefits without paying capital gains tax on it.
In any exchange the Investor must enter into the exchange prior to the close of the relinquished property. The Investor and a company (individual) who serve as an Qualified Intermediary enter into an Exchange Agreement, which essentially requires that (a) the Intermediary acquires the relinquished property from the Exchanger and transfers it to the buyer by a direct deed from the Exchanger and (b) the Intermediary acquires the replacement property from the seller and transfers it to the Exchanger by a direct deed from the seller. The cash or other proceeds from the relinquished property are assigned to the Qualified Intermediary and are held by the Qualified Intermediary in a separate, secure account. The exchange funds are used by the Qualified Intermediary to purchase the replacement property for the Exchanger.
Important Considerations for an Exchange
- Exchanges must be completed within strict time limits with absolutely no extensions. The Exchanger has 45 days from the date the relinquished property closes to "Identify" potential replacement properties. The purchase of the replacement property must be completed within 180 days after of the close of the sold property.
- To avoid the payment of capital gain taxes the Exchanger should follow three general rules: (a) purchase a replacement property that is the same or greater value as the initial property, (b) reinvest all of the exchange equity into the replacement property and (c) obtain the same or greater debt on the replacement property as on the relinquished property. The Exchanger can offset the amount of debt obtained on the replacement property by putting the equivalent amount of additional cash into the exchange.
- In the case of real property exchanges, the Exchanger must sell property that is held for income or investment purposes and acquire replacement property that will be held for income or investment purposes. This is the "like kind" property test.
WHAT PROPERTY QUALIFIES FOR IRC §1031 *TREATMENT?
The following are examples of qualifying properties:
Bare land Farmerıs farm
Commercial rental Residential rental
Industrial property Doctorıs own office
30-year leasehold interest Percentage interest in investment property
Under IRC § 1031 the following properties do not qualify for exchange purposes:
- Stock in trade or other property held primarily for sale (Note: this includes property held by a developer or other dealers in property);
- Securities or other evidences of indebtedness or interest;
- Stocks, bonds, or notes;
- Certificates of trust or beneficial interests;
- Interests in a partnership (Note: the partnership can elect out of partnership status under IRC §761(a));
- Choses in action (this is a right to receive money or other personal property by judicial proceeding).
"LIKE-KIND" PROPERTY EXCHANGES
- Residential for commercial
- Bare land for rental property
- Fee simple interest for 30-year leasehold
- Single family rental for multi-family rental
- Non-income producing raw land for income producing rental property
- Rental mountain cabin for a dental office in which the Exchanger intends to practice
Corporate twin-engine aircraft for a corporate jet
Mitigation credits for restoring wetlands for other mitigation credits
Buses for buses
- Garbage routes for garbage routes
- Livestock of the same sex (Note: livestock of different sexes are not of like kind)
These pages have been only a brief synopsis of what constitues a 1031 Exchange. For further information, consult your accountant and attorney to obtain professional and legal advice*.
* www.infolv.com & Las Vegas First Realty cannot provide advice regarding specific tax consequences. Investors considering an IRC 1031 tax deferred exchange should seek the counsel of their accountant and attorney to obtain professional and legal advice.
FOR ADDITIONAL INFORMATION REGARDING 1031 EXCHANGES IN THE LAS VEGAS VALLEY, PLEASE FILL OUT THE FOLLOWING FORM COMPLETELY
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