The TRUTH Behind 1031 Exchanges

Описание: 1031 Exchanges have been around since the mid-90s, but have recently become a much more popular way to allow investors to deter the tax on capital gains to some point in the future. These play a big role for people who have a lot of different investment properties, such as vacation homes, or rental properties in addition to their own.

Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in trade or business, or for investment. A tax-deferred exchange is a method by which a property owner trades one or more relinquished properties for one or more replacement properties of “like-kind”, while deferring the payment of federal income taxes and some state taxes on the transaction.

Think of a 1031 as a “Like-Kind” exchange, where it’s a swap of one property for another.

The theory behind 1031 is that when a property owner has reinvested the sale proceeds into another property, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer’s investment is still the same, only the form has changed. For example: trading a house for a condo.

Although most swaps are taxable as sales, if yours meets the requirements of 1031, you'll either have no tax or limited tax due at the time of the exchange. Under section 1031, any proceeds received from the sale of a property will remain taxable. For that reason, proceeds from the sale must be transferred to a qualified intermediary.

A qualified intermediary is a person or company that agrees to facilitate the 1031 exchange by holding the involved funds in the transaction until they can be transferred to the seller of the replacement property.

If anything said has sparked the desire to reinvest extra properties you may have, be mindful of the following:
• The property must have been owned for a year.
• The replacement property must be identified in 45 days, and bought in 180 days.
• If you are doing a 1031 Exchange to live in the property after the exchange, the property must be rented for a year before you move into it.

Hopefully this information has been helpful. If you have questions about this topic, visit http://lticsd.com - We are always happy to help!

--

About Lawyers Title San Diego:
At our core, we are good people doing great work. Our commitment to top-shelf customer service sets us apart, and is unparalleled in San Diego County. For more information about Title Insurance, feel free to visit our website: http://LTICSD.com, or email [email protected].