How To Save $ thousands On Capital Gains Taxes
Use the following 1031 rules or contact your Alliance agent for another idea that can save the capital gains, cut income taxes, and give you guaranteed income!
Ten 1031 Exchange Rules
“You do not have to swap properties. You can sell and buy, if you do it right . . .”
IRS Section 1031 tax-deferred exchanges are great ways to postpone capital gains taxes on your real estate investments or farmland. But be sure you follow the rules.
1. You must have the help of a professional from the very beginning of any sale or purchase. The potential tax savings can easily offset any fees. After a sale is made, it is too late.
2. Even property sold at Auction can qualify for tax-deferred treatment. You can get a quick, fair-market value sale and TAX SAVINGS with an Alliance Auctioneer’s professional assistance.
3. Exchanges can be used only for investment properties or properties owned for use in a business (such as farm land). They can’t be used for residences or for second homes unless the property is used only for rental to third parties. You don't pay any capital gains on your residence anyhow.
4. Exchanges must be made between like-kind properties. The like-kind properties must both be used for investment or business purposes, but that doesn’t mean they have to have the same exact use. An apartment can be exchanged for a strip center, or land for a business building, for example.
5. To meet the Internal Revenue Service guidelines for an exchange, you must identify the replacement property for the one you exchange within 45 days of the initial property transfer date. You may identify up to three properties of like value or as many properties as necessary to total the fair market value of the property you are exchanging. Properties may also be exchanged for tenant-in-common interest shares in larger, institutional-grade property. Say you own a $1 million retail property. You may exchange it for a 10 percent ownership interest in a $10 million property. There are a host of benefits to these fractional interest exchanges. You may be able to buy into properties of a size and quality you couldn’t otherwise afford. There’s also the chance to trade your management responsibilities for ownership interests in a professionally managed property.
6. You must close on the replacement property within 180 days from the initial transfer date of your property to the other party. Note that IRS regulations now let you buy the replacement property first in what is called a reverse exchange.
7. It the property exchange isn’t simultaneous, you must use a qualified intermediary—often a bank or an attorney—to hold the money until the other part of the exchange is complete.
8. If you end up with cash to even out the value of the two exchanged properties—often called a "boot”—that cash is taxable at current capital-gains rates.
9. All exchanged properties must be located in the United States.
10. If the property you receive in exchange is from a person related to you and you then sell the property within two years, the original exchange won’t be qualified for deferred capital gains.
Note: Like-kind exchanges are often complicated. A failure to follow the rules can result in IRS disallowing of the exchange. Check with an Alliance Professional, an experienced tax attorney or other financial professional.
We found much more detail about 1031 exchanges (including good reasons to exchange) at: http://www.wave.net/immigration/lawyer/tax_avoid.html , and other places on the web. Be sure to check the accuracy of the information with your local trusted professional.
© Copyright 2005 Silas Deane, Alliance Marketing, LLC
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