Gayle Harvey Real Estate, Inc.
154 Hansen Rd.
Charlottesville, Va 22911
434.589.5340
1.888.8Va.Land
E-mail
us
1031 Tax-Deferred Exchanges
Many real estate owners feel like they are being held hostage
by large unrealized capital gains. If they sell their real estate, the federal
tax liability of 15/25% would reduce their equity available for re-investment
into other real estate. For many, the Internal Revenue Code section 1031 may
be a solution to their problem! This section of IRS code allows an investor
to exchange certain real estate for other real estate with no recognition
of a gain!
In order to take advantage of this, all the equity from the
first property must be invested into the second or replacement property. Any
portion of the receipts from the sale of the first property that is not reinvested
into the second, will be taxed as capital gains. There are four citeria that
must be met:
- The property exchanged by you and the property purchased by you must be
real estate that is held for productive use in trade, business or investment.
Rental properties and farms are good examples. Your personal residence does
not qualify for a 1031 exchange.
- The properties exchanged must be of like-kind. All real estate is like-kind, so you can sell a farm
and invest in an apartment complex and take advantage of the 1031 exchange! However, the property has to be within
the United States.
- There must be an actual exchange. An exchange is "a reciprocal transfer
of property." You cannot merely think you might do an exchange.
- The exchange must meet two time restrictions. The property that you are to recieve must be identified no
later than 45 days after the date you sold your first property. And the property that you are purchasing
must be transferred to you before the earlier of 180 days after the date that you sold the first property or the
due date of your tax return for the tax year of the exchange, although you can apply for an extension for filing your taxes
in order to gain more time!
If you are interested in learning more about 1031 echanges, talk with your tax accountant or attorney or
feel free to Contact
us!
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