A 1031 exchange, also known as a Starker Trust, is used by a real estate investor who wants to sell an investment property he or she owns but does not want to pay any taxes. A 1031 exchange allows the seller of investment property to defer taxes by purchasing another property that costs at least as much as the property he or she is selling. There are very strict rules for using 1031 exchanges, and if you blog the deadlines or rules, the 1031 will not be valid. Typically, you’ll need a third-party company to hold your 1031 funds (you’ll want to choose this company carefully) and a real estate attorney that you hire to protect your interests. This topic page is the nerve center for hundreds of articles and videos about 1031 exchanges. These articles discuss the nuances of selling property tax-free using a 1031 exchange. You can use the topic cloud on the right navigation to further refine your search.
1031 Reverse Exchange
A 1031 exchange is used by a real estate investor who wants to sell an investment property he or she owns but does not want to pay any taxes. To avoid the payment of taxes, he or she sets up a 1031 exchange with one of the many companies that provides this service. In essence, the 1031 exchange company parks the money until you can find and close on a replacement property.
1031 Helps Save On Taxes
With an estimated 15 million Americans owning investment property, more people are using 1031 tax-free exchanges in order to defer capital gains. A 1031 exchange is a provision in the Internal Revenue Code that permits an owner of investment property to sell the property and buy a new property without having to pay any taxes on the sale of the old property. To use a 1031 exchange, an investor must comply with strict rules relating to the use of the proceeds from the sale.
1031 Exchange: Use When Dividing Property
A property owner who inherited a 160-acre ranch has the opportunity to sell the property at considerable gain and wants to know if a 1031 exchange can be used. A 1031 exchange can be used by real estate investors when selling one investment property to buy another and defer federal taxes on the property sale. A 1031 exchange may not be used for a primary residence. A 1031 exchange can be used when dividing property, but speak to a 1031 exchange expert first.
Converting 1031 Exchange To Primary Residence
Real estate investors often use a 1031 exchange to sell one investment property and purchase another so that they may defer federal income taxes. If, after purchasing the rental or investment property, you decide to convert it into a primary residence after using a 1031 exchange, you must wait two years.
New IRS Rule For 1031 Exchange
Some real estate investors use a 1031 exchange to purchase a residence and defer federal income taxes, but the IRS rules for this type of transaction can be tricky. The IRS recently changed the 1031 law to include a 5 year ownership requirement. When using a 1031 exchange, plan ahead and consult a good accountant.
1031 Reverse Exchange May Be Better Option Than 1031 Exchange
In a 1031 exchange, a real estate investor purchases a similar investment property to replace another property, and is able to defer any federal income taxes owed. But the IRS has strict timelines for 1031 exchanges and sometimes a 1031 reverse exchange may be a better option though it could be more expensive.
Use 1031 Exchange To Avoid Capital Gains Tax
Just calling a home your sold home your primary residence doesn't mean you'll avoid capital gains taxes. Using a 1031 exchange when selling a home and buying a new one can help defer capital gains taxes. With a 1031 exchange, you can swap investment property for another income-producing property that costs at least the same amount.
Time Limit For 1031 Exchange
A 1031 exchange allows property owners to sell one investment property to purchase another and defer taxes, provided that the new property costs at least as much as the original property. But you typically have 45 days to designate the property to be exchanged and there are other rules for 1031 exchanges. Consult a real estate attorney who frequently does 1031 exchanges before buying or selling.
Avoid Large IRS Bill With 1031 Exchange
Whenever you sell rental properties, you will not only owe capital gains tax on the sale, but if you have been depreciating those properties, you will also have to recapture the depreciation for the IRS. The only way to defer paying capital gains tax is with a 1031 exchange, which you can use to purchase a replacement property that is as much or more as the property you are selling. If you are looking to sell multiple properties, sit down with an accountant to strategize when to sell properties to take advantages of tax benefits.
Using 1031 Exchange For Building Owned With Friends
Using a 1031 exchange on jointly-owned property depends on if the homeowners own the home as joint tenants or tenants in common. The cost of setting up a 1031 exchange trust isn't much but the benefits of deferring a significant amount of tax to the Federal government can be tremendous. The rules regulating 1031 exchanges are rather strict.