1031 Tax Free Exchange

The capital gains taxes levied due to the sale of a property can be deferred indefinitely if the gains are reinvested directly into a replacement like-kind property. However, it is extremely challenging to identify a like-kind property because they are not generally listed or available on the public market. That is where 1031 sponsors and experts come in play. We have a proven track record in successfully executing many 1031 tax exchanges for our clients. We can give you an edge over other investors because we have access to hard-to-find properties. We can also assist you in identifying a replacement property within the time constraints set by IRS paving the way for a successful 1031 tax-free exchange

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1031 tax-deferred properties aren’t confined by location, value, or style. Properties are scattered across the country varying from small multifamily properties to substantial industrial complexes. We can assist brokers in locating the ideal property that suits their clients’ requirements and can support them move towards attaining their financial goals. We also operate closely with expert independent investors. If you’re an independent investor looking for an ideal broker, we can take care of that as well. Our robust broker referral network supports you to unite with experienced firms that will provide you with the credibility and infrastructure you need to successfully complete a 1031 tax free Exchange.

It is tough for investors to find a suitable property, it can be even harder for developers and owners to locate the right investor. Section 1031 tax exchanges are frequently referred to as tax-free exchanges, though the appropriate term for any 1031 transaction is a tax-deferred exchange. Deferred in this context means that a tax supposed to be reported in the year of sale is delayed to a future date. In an unlikely event of the death of a taxpayer, the deferred income tax ends up being exempted. A smart investor will never miss an opportunity to take advantage of IRC 1031.

From the late 90s through 2012 the maximum capital gains tax rate was 15%. Taxpayers worried about future tax raises preferably recognized taxes due on sales of assets in the year of sale. Mostly investors were unaware about Tax-deferred exchanges, and 1031 exchanges were not so popular. When the increase in tax rates was announced in 2013, tax-deferred exchanges came across as an attractive option. The tax benefits of a 1031 exchange are the deferral of capital gains tax and, if applicable, net investment income tax (NIIT). Capital gains tax rates for individuals are currently at a maximum rate of 20%, and the NIIT tax is 3.8%. The consolidated rate of 23.8% is approaching the 28% capital gains tax rate that was in impact for most the 90s, a period in which 1031 exchanges were favorite.

There are specific types of properties being utilized in a trade or business which are eligible for tax deferral in an exchange. While many taxpayers consider their home as their significant investment, it is not considered a suitable property under the IRC. A cabin is also not a suitable investment property.

As with all tax strategies, the primary step is to decide the possible benefits. Though numerous 1031 promoters maintain an excellent working knowledge of the applicable rules for a tax-deferred exchange, it is beneficial to confer with a tax professional that has a comprehensive understanding of all the relevant tax aspects.

For successful execution of a 1031 tax exchange, you must accurately follow the rules. The replacement property must qualify as “like-kind.” It needs to be identified within 45 days from the date of sale of the property currently held, and the replacement property must be acquired within 180 days of the time of sale. Accommodators or facilitators are used commonly as it is scarce that you will find someone to swap property with. The role of an accommodator is to hold the sellers’ proceeds until the purchase of the replacement property.

There are other complexities in a 1031 tax free exchange transaction:

✔  The Cash obtained from the sale of the property should not reach the seller’s hands (or account)

✔ The replacement property’s value must equal or exceed the property sold, to the extent it does not, gain

✔ and deferral is allotted proportionately from the first dollar of gain

✔ These values are based on transaction value, not net of debt or proceed values

✔ Accommodators may have to be involved, resulting in a commission, and most importantly, vetting of the accommodator to make sure your gains will be safe

 

1031 tax free exchange enables your money to churn the maximum profit for you. However, the exchange process is extremely complex in nature and it would be wise to seek guidance from expert professionals. We have extensive experience in handling highly profitable exchanges for our varied client base. For consultation and assistance regarding 1031 exchange call – 888-993-2835 or email us at info@1031xchange.com.

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”