Home >> 4 tips to consider for your tax-dererred exchange
Real estate investors may be required to pay any capital gain taxes when an appreciated parcel of real property is sold. Under current federal tax law, an IRC §1031 tax-deferred exchange allows the investor to defer the capital gain tax by investing in a “like‐kind” exchange. If an investor sells an appreciated parcel of real property, that was held as an investment, and exchanges for a like-kind property, any capital gain can be deferred. To facilitate a 1031 exchange, the investor is required to use a qualified intermediary (accommodator), like Full‐Service 1031, LLC, to receive and hold the net sales cash proceeds from the sale. Full‐Service 1031, LLC provides 1031 Exchange services in Utah, and the United States.
Here are four tips relating to some of 1031 exchange requirements:
Know your deadlines ‐ If you're planning to complete a 1031 exchange, you are required to identify a replacement property within 45-days of closing the sale of your existing real property. It is always good to ID more than one property in case one falls through. After the 45-day identification period, you then have 135-days (180-days total) to re‐invest the proceeds into the replacement property.
Don’t take cash ‐ If you want to defer all of the capital gain, then you cannot take possession or control of any cash from the sale of your existing property. Otherwise, you will have what is referred to as “boot” which is taxable. When you open escrow for the sale of your existing property, notify your escrow agent and the title company that you would like to close escrow as a 1031 exchange. This will give you the flexibility to facilitate a 1031 exchange, and you still have the option to take cash if you decide to opt out of a 1031 exchange.
Always hire a professional ‐ Retain a reliable 1031 exchange accommodator for professional 1031 exchange services. Our team, at Full‐Service 1031, LLC located in Salt Lake City, has processed hundreds of millions of dollars in 1031 exchanges and is knowledgeable, trustworthy, and experienced. We always recommend our clients consult with their accountant, or other tax professional, regarding what is best for their individual financial needs and goals regarding a 1031 exchange. After making the decision that a 1031 exchange is in the best interest of meeting your financial goals, Full Service 1031, LLC is here to help you to achieve a successful 1031 exchange transaction.
The real property must be held as an investment – The real property sold, and the replacement property, are each required to be an investment property (or used in a trade or business). Neither property can be used for personal use.
A section 1031 tax-deferred exchange can be a complicated process for individuals. Let us know how we can help achieve your 1031 exchange experience. We are available to answer any questions you may have regarding a 1031 exchange.