Return to the
Home Page
-
What is a 1031
Exchange?
-
Who can use an
exchange?
-
What is a Qualified Intermediary and do
you have to have one?
-
Why would you use a 1031 Exchange?
- What can you exchange?
-
What is the difference between IRC
Sections 1031 and 121?
-
How are you protected in an exchange?
-
Financial and Real Estate Professionals
– What you need to know.
-
Imagine the Possibilities – Real life
examples.
-
What
are the requirements and process for a 1031 Exchange?
-
Will you mail free information to me or someone I recommend?
-
What is a Reverse Exchange?
-
What is a Construction
Exchange?
-
How much does an exchange cost?
Normally, when you
sell investment or business property, you must pay tax on the gain. Gain is
caused by property appreciation and/or depreciation deductions taken for tax
purposes. A 1031 Exchange is not a tax loophole, but a provision in the
Internal Revenue Code (IRC) that allows any taxpayer who meets the requirements
to transfer property and defer paying taxes on the gain. In effect, Uncle Sam
loans you the money you would have paid in capital gains taxes to invest in your
next property or properties. This leverage gives you more of your sale proceeds
and allows you to build wealth more quickly. The current federal capital gains
rate for most property transactions is 15% and many states add an additional
5%. Give us a call or see on our “Step by Step 1031 Guide” to see the
requirements.
Any taxpaying
entity (individual, S Corp, LLC or C Corp) that desires to give up real property
held for productive use in a trade or business or for investment, for
re-investment in property held for productive use in a trade or business or for
investment. If it doesn’t involve your primary residence, then it is most
likely exchangeable.
The
Qualified Intermediary (QI), sometimes called the accommodator or facilitator,
is a federal law requirement for IRC §1031. For you, the taxpayer, to exchange
property and defer the tax, you cannot have control of the proceeds from the
sale of your old property. By law, the money is held by a QI during the exchange
for the new property. You are not able to simply leave the money in escrow
until the new property is purchased. Also, the QI cannot be your attorney,
relative, associate, broker, CPA, or an employee. Our QI is a nationally
recognized leader in Section 1031 Exchanges and:
-
provides you with free consultations to help you understand the exchange
process, structure the exchange to meet your objectives and answer all of your
questions
- has
over 90 years combined experience in the exchange industry, with attorneys,
CPAs and real estate and lending professionals on staff available to you and
whose only business is 1031 exchanges
-
maintains a $5,000,000 Fidelity Bond insuring each transaction against losses
resulting from dishonest acts (we will be happy to provide you with Evidence
of Insurance)
-
provides a written guarantee of audit protection, without cost, in the
unlikely event the exchange is audited by the IRS
- pays
you interest on your funds held during the exchange
-
operates in all 50 states
- is an
active member of the Federation of Exchange Accommodators (FEA)
-
maintains Errors and Omissions coverage on all of its consultants
- can
provide short turn-around preparation of the exchange if you are under a tight
time frame
-
provides all the documentation and coordination needed with closers, title
companies, real estate professionals, CPAs and other tax advisors, attorneys
and bankers
- keeps
you fully apprised of the status of your exchange, including the 45 day and
180 day deadlines
- holds
the highest industry certification
- does
not require you to sign a hold harmless agreement
-
clearly and completely outlines the fee structure for your exchange. You can
obtain the details on these and other issues by calling us toll free at
1-877-644-7718.
The simple answer
is to defer payment of capital gains tax and thereby reinvest more of your sale
proceeds into the next investment property. Instead of paying about 20% tax on
the gain, you, in effect, get an interest free loan from Uncle Sam and the
state, and that money works for you as leverage to increase wealth.
Additionally, exchanging real estate allows you to relocate, consolidate or
diversify, reduce your management involvement or increase cash flow. IRC
Section 1031 allows you to meet your investment objectives without giving
up your hard earned equity to taxes.
With respect to
real property, the like-kind requirement of Section 1031 is very broad. Any
property used to produce income is like-kind to any other income producing
property. So you may exchange a rental house for a condominium or a ranch for
apartments or a duplex to buy raw land or virtually any combination of
investment or business properties. In general, as long as it does not involve
your primary residence, you can exchange it.
Section 1031
provides for the deferral of capital gains tax on the like-kind exchange of
property held for productive use in a trade or business or for investment.
Section 121 completely excludes up to $500,000 gain on the sale of primary
residences that meet its requirements. While these are two different provisions
for different kinds of transactions, they can both be included in a longer term
strategy to eventually exclude capital gains on investment property.
With a
quick phone call, we can provide you with detailed information about our
national Qualified Intermediary (QI). A QI is required by federal tax law. Our
nation-wide QI not only has an experienced staff of CPAs, Attorneys,
Accountants, Real Estate and Lending Professionals, but also:
-
carries a $5,000,000 fidelity bond on each transaction,
-
maintains Errors and Omissions coverage on each consultant,
-
provides a written guarantee of audit protection for each exchange,
- holds
the highest industry certification,
- does
not require you to sign a hold harmless agreement, and
-
belongs to the only national association for Qualified Intermediaries
for more, see
What is a Qualified Intermediary and do you have to have one?
Back to Top
Call us for
complete information about our nationwide Qualified Intermediary, and to request
a copy of a Section 1031 Exchange Handbook that we would be happy to send to
you. When you or your clients ask the question, “Can I do a 1031 Exchange?” you
will have the information, resources and professionals to make it happen and
more leverage to increase your clients’ wealth building portfolio. This kind of
added value service makes you more valuable to both current and new clients.
Also, ask about continuing education classes and seminars that may provide
several hours of CE credit.
Back to Top
-
Scenario 1 - Asset Consolidation using Section 1031
– Rick had several rental
properties and was finding it challenging to manage multiple locations
throughout a large metropolitan area. He was able to exchange out of those
rental homes, defer nearly 20% of his gains, and consolidate his investment,
time and attention into one apartment building.
-
Scenario 2 - Getting the property you want, with a reverse exchange
– Richard had found his dream property in Florida, but hadn’t even listed the
first of his rentals that he needed to sell in Georgia. We locked up, or
parked, his dream property using a reverse exchange and gave him all the time
he needed to sell his properties, without losing out on a once in a lifetime
deal.
-
Scenario 3 - Planning for retirement by using Sections 1031 and 121
– Don and Becky owned and managed three rental homes in a cooler region of our
fair country, but wanted to retire in Arizona. We structured a reverse
construction exchange whereby they were able to have their AZ land purchased
and a house built on it to their specifications. The dream house was going to
require all the proceeds from the three rentals and then some. Instead of
moving into that home right after they finished selling the last rental, they
rented the AZ home out for a suitable period to qualify for the capital gains
tax deferral under Section 1031. By using a 1031 exchange, they were able to
put about 15% more of their proceeds toward the retirement home and build just
the home they wanted. But there is more. By developing this plan with just
a few years lead time, they were not only able to take the Section 121
exclusion on their previous primary residence, but when they did stop renting
out the AZ house and converted it to their next primary residence, they again
excluded all the gain that they had moved into it from the sale of those three
rentals.
-
Scenario 4 - Get out of property management, but stay in real estate, using
Section 1031 –
Dave and Elizabeth were tiring of the management hassles of having several
rental properties, so they exchanged multiple rentals for a tenancy-in-common
interest in a commercial building at a very attractive cap rate.
-
Scenario 5 - Asset diversification, using Section 1031 – Raymond was concerned about having all of his
investment in one apartment building and exchanged that one property for
several smaller and diverse properties over a broader geographic region
spanning a couple of states.
Back to Top
Step by Step
1031 Guide – This
is a basic outline of the 1031 Exchange requirements and how they fit into the
process of starting and completing an exchange.
-
Contact us before you close on the sale of your property. Federal tax law
requires a Qualified Intermediary for the 1031 Exchange, so your very first
step is to contact us to set up the transaction in compliance with the 1031
requirements.
- Title
on your new property must be held in the same name that is on the old
property.
-
Section 1031 requires that your new property be identified within a
list of properties, within 45 days of closing on the sale of your old
property. It also requires that you close on one or more of those listed
properties within 180 days from the closing date on your old property.
- Your
purchase of the new property, or properties, must utilize all of your cash
proceeds out of your sale and the new value must be at least equal, in order
to avoid all taxation on the gains.
Since Section 1031 does require a Qualified Intermediary and compliance with the
law, that is where we come in. Our only business is structuring, fully
protecting and successfully completing Section 1031 Tax-Deferred Exchanges for
our clients. Our toll free number for free consultations is 1-877-644-7718.
There is no cost until you have signed an exchange agreement and close on the
sale of your property.
Back to Top
Yes. Simply
call or email us and ask for our free brochures on 1031 Exchanges and Reverse
Exchanges. Contact US.
Back to Top
Under Section
1031, you cannot exchange into property you already own. But what if you want
to buy or secure your new property before you are able to sell your old
property? A Reverse Exchange provides a way to hold or park the new property
for you until you are able to close the sale on your old property or
properties. We do reverse exchanges all the time, but they do require more up
front planning and effort, so call us if you think a reverse exchange or reverse
construction exchange may fit into your investment planning.
Back to Top
If your
objective is to buy raw land and build on it, then the QI must buy the land on
your behalf and begin the construction. Call for more information.
Back to Top
$650 is
the most common Exchange Fee that we quote, but fees can be higher or lower
depending on the structure of each exchange. Call toll free at
1-877-644-7718, to discuss your objectives and receive a quote over the phone.
Back to Top
Return
to the Home Page
Copyright © 2004 1031 Tax Exchange Services, LLC. All rights
reserved.
Revised: 04/28/04.