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1031 Exchange: The Ultimate Guide

THE ULTIMATE GUIDE 1031 EXCHANGES Hi, I'm an investor like you, preparing for the sale of an investment property. Taxes are what I like to refer to as "guaranteed losses," and I attempt to defer or eliminate them whenever possible. Let's discuss one of the best ways to legally defer the capital gains taxes that would otherwise be due on the sale of investment property. It's called a "1031 exchange." TRADITIONAL SALE VS 1031 EXCHANGE federal taxes I plan to sell my investment property depreciation recapture but the taxes may state taxes exceed 20-35% of the capital gain. TRADITIONAL SALE SALE PRICE CAPITAL GAIN PURCHASE PRICE 1031 EXCHANGE If I reinvest the proceeds from the sale of my investment property using a 1031 exchange, I can defer all those taxes and keep 100% of my capital working for me! GENERAL 1031 EXCHANGE RULES 1 Properties Must Be Like-Kind FOR RENT In a 1031 exchange, the replacement property must be "like kind" to the relinquished property. The difference in type, grade, and quality does not matter. Generally, any real estate held for business or investment purposes in the U.S. or U.S. Virgin Islands is considered "like kind." For example, an investor can exchange a commercial property for another, or a residential rental property for a commercial property, and vice versa. home sweet home My own personal residence and vacation home are not considered to be of "like kind" to any real estate held for investment or business purposes, and cannot be used in a 1031 exchange. (There are other tax shelters that apply to the sale of one's personal residences.) All Proceeds Must Be Reinvested The value of the replacement property must be equal to or greater than the value of the relinquished property to obtain a full deferral. I would have to pay the capital gains taxes on any of the proceeds that weren't reinvested. 3. Titles Must Be Identical The ownership title for the replacement property must be identical to the title for the relinquished property. 1031 EXCHANGE OVERVIEW STEP 1. DECIDE TO EXCHANGE STEP 2. SELL PROPERTY I need to sell my investment When I relinquish my property, I property but I don't want to pay the can't take receipt of the proceeds, capital gains taxes, so I am going to so I will have the funds held by a complete a 1031 exchange. Qualified Intermediary. III STEP 4. BUY PROPERTY STEP 3. IDENTIFY PROPERTY Once I decide which of the Once the Qualified Intermediary identified properties to acquire, holds the proceeds from the sale, the Qualified Intermediary will I'll work with my broker or forward the funds for the closing. investment advisor to identify suitable replacement properties. THE 1031 EXCHANGE TIMELINE Once I close escrow on the sale of my investment or business property, the countdown starts. I have 45 calendar days to identify possible replacement properties, and 180 total calendar days to close escrow on my replacement property. The countdown includes weekends and holidays. I have to be careful because the IRS is very strict about these deadlines. DAY DAY 45 180 SELL PROPERTY IDENTIFY PROPERTY BUY PROPERTY PROPERTY IDENTIFICATION RULES 1 I may identify up to three potential replacement properties 3-property and purchase any (or all) of them, rule .. 2 regardless of their total value, to complete my exchange. OR If I'd rather, I may identify more than three potential replacement properties, if their total 200% rule value does not exceed 200% of the value of my relinquished property. I may purchase as many of the identified properties as I want. OR If neither of the other two rules suit my needs, I may identify any number of potential : 用 。 6. 95% rule replacement properties regardless of their total value, so long as I purchase 95% of the 10 total value of all of the properties identified. BENEFITTING YOUR HEIRS I can continue to defer my capital gains taxes using the 1031 exchange process until it becomes time to pass my assets on to my heirs. When that happens, the basis by which the capital gains are determined steps up to the current market value. SALE PRICE NEW BASIS CAPITAL GAIN PURCHASE PRICE = "BASIS" So when I inherit this investment property, I could sell it for its current value and no capital gains would be recognized! Twitter: @1031Gateway Facebook: 1031Gateway 1031 GATEWAY (800) 818–1031 | Google+: +1031Gateway Pinterest: 1031Gateway 国 国 EE EE :: 2.

1031 Exchange: The Ultimate Guide

shared by tenthirtyonegateway on Feb 04
What is a 1031 exchange? In this infographic you will learn how to defer your capital gains taxes utilizing a 1031 exchange, what kinds of properties qualify for 1031, what the basic 1031 rules and ti...


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