1031 EXCHANGE
Questions & Answers
WHAT IS A CAPITAL GAIN?
In simple terms, if an investor’s property appreciates in value, the investor has what is called a capital gain. If the investor sells this property at the appreciated price, the IRS considers this capital gain as “recognized.” As such, capital gains taxes must be paid on the amount of the gain. For many real estate transactions, this tax can add up to tens of thousands or millions of dollars. Payment of capital gains taxes can be legally avoided by effecting a 1031 Exchange.
HOW DO I AVOID CAPITAL GAINS TAXES?
Section 1031 of the Internal Revenue Code allows an investor to defer indefinitely the payment of capital gains taxes on the sale of property when he reinvests in replacement property of equal or greater value. This means an investor can move all of his equity from his relinquished (old) property to his replacement (new) property, rather than just the amount left over after paying capital gains taxes. It frequently happens that after paying the capital gains taxes, an investor could no longer afford to purchase the property he just sold!
WHAT IS A 1031 EXCHANGE?
Internal Revenue Code Section 1031 states specifically: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of a like-kind which is to be held for productive use in a trade or business or for investment."
DOES MY PROPERTY QUALIFY FOR A 1031 EXCHANGE?
To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business or for investment. (Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Internal Revenue Code, though securitized properties are not excluded.) Personal property does not qualify for a 1031 exchange as of January 2018, per tax reform legislation.
HOW DO I EXCHANGE?
A 1031 Exchange is almost never a trade or a swap of properties between two parties. Rather, the investor sells his Relinquished Property and buys his Replacement Property through the use of a Qualified Intermediary. Coast 1031 fulfills this role of Qualified Intermediary.
WHAT DOES COAST 1031 EXCHANGE DO?
As Qualified Intermediary, Coast 1031 acts as seller of your Relinquished Property and buyer of your Replacement Property. This is done through the use of contractual assignments.
Since Coast 1031 acts as seller and buyer on behalf of the investor, the IRS considers the investor to have merely exchanged properties. Because it is an exchange, the capital gains taxes that would ordinarily be due on the sale of the relinquished property are deferred. As long as the investor doesn’t make a regular sale of the property, the capital gains taxes will not have to be paid. Not only that, he can keep exchanging the property throughout his lifetime with the same benefit. As part of its role as Qualified Intermediary, Coast 1031 consults with the investor, structures the Exchange, and prepares all of the legal paperwork to convert the transaction from a taxable sale into a tax deferred 1031 Exchange.
Note: Coast 1031 does not act as the real estate broker, escrow agent or attorney. The investor can use anyone he wishes to fulfill these roles.
WHAT ARE THE 1031 EXCHANGE REQUIREMENTS?
I. Like Kind Properties
The relinquished property and the replacement property must be (1) held for investment or (2) held for productive use in your trade or business.
II. Exchange Values
The investor must exchange into a replacement property that is equal or more in total price and equity than the relinquished property.
III. Time Limits
From the closing date of the relinquished property, the investor has up to 45 days to nominate his replacement property and 180 days to complete the exchange.
Let us answer your 1031 exchange questions over the phone!
Questions & Answers
WHAT IS A CAPITAL GAIN?
In simple terms, if an investor’s property appreciates in value, the investor has what is called a capital gain. If the investor sells this property at the appreciated price, the IRS considers this capital gain as “recognized.” As such, capital gains taxes must be paid on the amount of the gain. For many real estate transactions, this tax can add up to tens of thousands or millions of dollars. Payment of capital gains taxes can be legally avoided by effecting a 1031 Exchange.
HOW DO I AVOID CAPITAL GAINS TAXES?
Section 1031 of the Internal Revenue Code allows an investor to defer indefinitely the payment of capital gains taxes on the sale of property when he reinvests in replacement property of equal or greater value. This means an investor can move all of his equity from his relinquished (old) property to his replacement (new) property, rather than just the amount left over after paying capital gains taxes. It frequently happens that after paying the capital gains taxes, an investor could no longer afford to purchase the property he just sold!
WHAT IS A 1031 EXCHANGE?
Internal Revenue Code Section 1031 states specifically: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of a like-kind which is to be held for productive use in a trade or business or for investment."
DOES MY PROPERTY QUALIFY FOR A 1031 EXCHANGE?
To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business or for investment. (Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Internal Revenue Code, though securitized properties are not excluded.) Personal property does not qualify for a 1031 exchange as of January 2018, per tax reform legislation.
HOW DO I EXCHANGE?
A 1031 Exchange is almost never a trade or a swap of properties between two parties. Rather, the investor sells his Relinquished Property and buys his Replacement Property through the use of a Qualified Intermediary. Coast 1031 fulfills this role of Qualified Intermediary.
WHAT DOES COAST 1031 EXCHANGE DO?
As Qualified Intermediary, Coast 1031 acts as seller of your Relinquished Property and buyer of your Replacement Property. This is done through the use of contractual assignments.
Since Coast 1031 acts as seller and buyer on behalf of the investor, the IRS considers the investor to have merely exchanged properties. Because it is an exchange, the capital gains taxes that would ordinarily be due on the sale of the relinquished property are deferred. As long as the investor doesn’t make a regular sale of the property, the capital gains taxes will not have to be paid. Not only that, he can keep exchanging the property throughout his lifetime with the same benefit. As part of its role as Qualified Intermediary, Coast 1031 consults with the investor, structures the Exchange, and prepares all of the legal paperwork to convert the transaction from a taxable sale into a tax deferred 1031 Exchange.
Note: Coast 1031 does not act as the real estate broker, escrow agent or attorney. The investor can use anyone he wishes to fulfill these roles.
WHAT ARE THE 1031 EXCHANGE REQUIREMENTS?
I. Like Kind Properties
The relinquished property and the replacement property must be (1) held for investment or (2) held for productive use in your trade or business.
II. Exchange Values
The investor must exchange into a replacement property that is equal or more in total price and equity than the relinquished property.
III. Time Limits
From the closing date of the relinquished property, the investor has up to 45 days to nominate his replacement property and 180 days to complete the exchange.
Let us answer your 1031 exchange questions over the phone!
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