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1031 Property Exchange
A 1031 Exchange is a method, authorized by the Internal Revenue Code 1031, in which a property owner exchanges one property for another without having to pay capital gains taxes. In a regular property sale, the owner has to pay taxes on the gains from the sale of any real property. In an exchange, the tax is deferred indefinitely.
The property exchange has to meet certain criteria to qualify for the tax deferral. The seller must include in the sales contract that the property will be exchanged. Before the sale of real property, the sell must identify a qualified intermediary who will hold the property for exchange. Once the property has been sold, the seller then has 45 days to identify potential exchange properties. The entire exchange process must be completed within 180 days of closing.
At the Trimac Group, we have agents experienced in the 1031 Exchange process. We can assist you in selling your property and help identify a replacement within the required time frame. We have access to qualified intermediaries that are familiar with real estate transactions in Montana. We also strongly recommend that you have your accountant and/or attorney review any real estate transaction.
Why Exchange?
Capital Gains Taxes Federal and State combined can be up to 25%
Leverage by having more money to put down, a bigger property or multiple properties can be acquired.
Sell Later by exchanging today, it is possible that you can sell in the future when there is a may be a more favorable tax break.
Time Value of Money a dollar today is worth more than a dollar tomorrow. Instead of paying $10,000 in taxes today, pay it in the future when $10,000 is worth less.
Cash Flow Exchange land for property with improvements that may generate income.
Appreciation Exchange commercial property for single-family rentals that appreciate faster.
Less Management Exchange rentals for raw land or for property that can be professionally managed.
Better Location Exchange property from a run down location to a better location.
Accomplish Goals Exchange one large property into multiple properties to leave for heirs or to build your real estate investment portfolio.
Like-Kind Property Refers to the type of property being exchanged investment property for investment property; for example, commercial property for vacant land.
Exchanging Up This means that the property that is exchanged into must be even or up in value and even or up in debt.
Boot The amount to which the exchange is not even or up in value and/or debt service does not qualify for the exchange. This is computed on the amount of gain on the sale or the amount of boot received whichever is lower.
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