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What is a 1031 exchange?
Tax-deferred exchanges allow an investor to exchange investment property for like-kind investment property while deferring capital gains taxes. In most cases, the use of an intermediary or exchange facilitator is required to make the exchange work in the eyes of the Internal Revenue Service. The intermediary must be engaged prior to the close of the sale. If real property is being exchanged, any kind of investment property qualifies except personal residences. Thus, the Exchanger can exchange vacant land for an apartment, a rental house, or commercial property.
How the 1031 Exchange Works
In order to defer all taxes on capital gains, the Exchanger must offset both cash received and debt paid off. These are separate items. If the property sells for $200,000 and a mortgage of $100,000 is paid off at closing, to defer all taxes, the Exchanger must spend all the cash proceeds and incur $100,000 debt. Any less debt incurred will be taxable as well as any cash paid to the Exchanger will be taxable.
The key to an exchange is that the Exchanger cannot have any control over the sales proceeds. The intermediary holds the proceeds in an interest-bearing account, with interest paid to the Exchanger, until the funds are needed to purchase the target property. Following the close of the sale, the Exchanger has 45 days to identify up to three target properties that he or she might purchase. The Exchanger has 180 days from the date of sale to close the purchase.
How Can We Help?
Naomi Van Steelandt assists her clients in meeting their specific and realistic investment goals. Her ability to provide innovative solutions to difficult problems ensures that each transaction contributes to the best way of achieving your goals. There are a few closing agents in Key West that are experienced intermediaries and will be able to close your 1031 real estate exchange.
If you would like further information about the varied benefits of real estate exchanges, CONTACT NAOMI HERE ...
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