I'm going to share with you some great information about how to do a 1031 Tax-Deferred Exchange and what that means to you as an investor, and what it will indicate if the current administration successfully removed this 100-year rule that's been in our tax code.
Before I dive even deeper into this, I am not a CPA nor an attorney. I am a Real Estate broker, and I've been selling homes since 2007. That's a bit of a disclaimer, so if I say anything that seems like tax advice or legal advice, it is just a general opinion. Go ahead and talk to your lawyer, CPA, or a qualified professional.
WHAT IS 1031 TAX-DEFERRED EXCHANGE?
The 1031 Tax Deferment is a mechanism in the tax law that has been around for more than a hundred years. It allows an investor to defer the taxes from one property to another.
You can avoid paying taxes so that when you have an investment property, you sell it, and then you take the proceeds from that and reinvest them into a new investment.
Basically...
It defers the taxes so that in the future, you'll have to pay the taxes on the last sale but not today. So, it doesn't eliminate the taxes, at least during the time that you're living.
1031 Tax-Deferred Exchange Rules:
Buy the replacement property for the same or greater than the property you sold.
Identify replacement property within 45 days of the close of the sale
Purchase replacement property within 180 days of the close of the sale
Must Sell and Buy a property that is considered "like-kind" to each other
a Qualified Intermediary (QI) must handle the process
THESE ARE THE TERMS THAT YOU NEED TO KNOW:
Choosing a Replacement Property: Timing and Rules
LIKE-KIND PROPERTY
There is a wide range of exchangeable real properties. You can exchange vacant land for a commercial building, for example, or exchange industrial property for residential.
"STEP UP RULE"
When you pass away, the property that your heirs inherit is going to be "stepped up to the local market value," and then whoever inherits that is taxed on any gain from that point moving forward. So, 1031 allows you to move the money through without getting taxed and then pass it on to an heir without additional taxes for them to pay.
THERE ARE TWO CRITICAL TIMING RULES YOU MUST OBSERVE IN A DELAYED EXCHANGE:
45-DAY RULE
Within 45 days of your property sale, you must designate the replacement property in writing to an intermediary and specify the next property you will purchase. You can select three properties so long as you eventually close on one of them.
180-DAY RULE
Within 180 days of the sale of your current property you will have to close on your new property.
Your replacement property should be of the same or greater value. You must identify a replacement property for the assets sold within 45 days and then conclude the exchange within 180 days.
You can apply three rules to define identification. First, you need to meet one of the following:
Three-Property Rule allows you to identify three properties as potential purchases regardless of their market value.
You can locate an unlimited amount of property using the 200% rule as long as the replacement property value does not exceed 200% of the value of the property sold.
The 95% Rule allows you to identify as many properties as you like as long as you acquire properties valued at 95% of their total or more.
IS A 1031-TAX EXCHANGE ONLY FOR RICH PEOPLE??
I understand that you may say, well, this is for wealthy people. I get that, but it is not just for rich people. Every single person I've done a 1031 Tax-Deferred Exchange with has been an ordinary person just like you, just like me.
I have seen ordinary people become millionaires through real estate investing. I've helped them become millionaires through real estate investing by understanding how to be able to grow their net worth, and that's something I'll be happy to be able to talk to you about as well.
Thank you for reading.
If you already own an investment, and you're thinking about doing 1031, and you're looking for somebody that can keep you out of trouble, save your money, and help you make more money, give me a call, and I look forward to helping you. Thank you!
If you're interested to learn more about Real Estate Investing or tips and strategies about Real Estate, you can reach me at 703-346-2776 or send me an email at Dan@greetingsvirginia.com. We will be more than happy to help you.
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