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In 1997, Congress passed new, generous rules that effectively eliminate capital gains tax on the sale of most people's primary residence. But what happens if you are selling any other classification of real estate investment property, business property, vacation home, etc.? You will be taxed on your profit unless you use the IRS Section 1031 Exchange Rule.
Despite recent reductions in capital gains tax rates, why pay taxes on the sale of investment real estate when you can defer that tax and increase your buying power on a bigger and better property?
Through the use of a “1031 Exchange”, Park Place Realty NW Inc. can assist in putting off taxes you would otherwise pay on the sale of investment property.
In conjunction with the First American Exchange, Park Place Realty NW Inc. will work diligently in order to help clients defer tax upon the sale of investment real estate by taking advantage of the 1031 exchange technique. For further information on this service, contact AJ Allen at firstname.lastname@example.org.
NOT SURE WHAT 1031 EXCHANGES ARE ALL ABOUT? Read our 1031 FAQ below. WHAT IS AN EXCHANGE? Use of the word "Exchange" is essentially a "legal fiction". What happens in the real world is that a sale and subsequent purchase are made interdependent using the 1031 Exchange technique and special paperwork. (You sell to whomever wants to buy and then buy whatever you want from any Seller.) These "exchanges" are often called Starker Exchanges or Tax Deferred 1031 Exchanges, but a better name would be The Investment Roll Over Rule. Your money rolls over into a new purchase.
WHEN SHOULD YOU USE THE TECHNIQUE? Anytime you are selling real estate that is not your primary residence and you are faced with an onerous capital gains tax, use the 1031 Exchange technique instead of simply selling. Virtually any new purchase could qualify as your replacement property. The diagram below will give you the idea.
WHY SHOULD YOU DO AN EXCHANGE? Tax money paid to the government is immediately lost forever and forever is a long, long time ! When you purchased the property, did it occur to you that you had made the Government a silent partner who would want to share the profits? Think of how long it would take you to save money lost to taxes and to rebuild that hard earned equity. Fortunately, you con avoid this scenario using the Exchange Technique.
HOW DO YOU DO AN EXCHANGE? Your sale and subsequent purchase must take place within a 180 day envelope. Special paperwork links these two events together and allows them to qualify as an Exchange. Sale proceeds must be deposited in a special account during the period between the sale and purchase. Exchange Rules require that you designate a Qualified Intermediary to perform these services.
Follow the explanation below to see how it works:
1. The Exchangor enters into a Contract to sell to anyone who wants to buy.
2. The Exchangor enters into an Exchange Agreement with a Qualified Intermediary.
3. The Contract for Sale between the Exchangor and the Buyer is assigned to the Qualified Intermediary.
4. The Closing takes place, the Exchangor deeds the property directly to the Buyer and the sale proceeds are deposited with the Qualified Intermediary.
5. Within 45 days after Closing, Exchangor identifies possible replacement property to the Qualified Intermediary.
6. The Exchangor enters into a Contract to purchase whatever property is desired from the Seller of that property.
7. The Contract for Sale between the Exchangor and the Seller is assigned to the Qualified Intermediary.
8. The Closing takes place within 180 days of the first closing, Seller deeds directly to the Exchangor, and the monies held by the Qualified Intermediary pay for the purchase.
9. The Exchange has been completed and no tax is owed. What really occurred is a Sale and subsequent purchase that were made interdependent through use of the Exchange technique and use of a Qualified Intermediary.
Note: The Exchangor must not receive or handle any funds at any time after the sale of the investment property to be exchanged!
ARE THERE ANY RULES OR REQUIREMENTS? There are three requirements your transactions must meet in order to have a completely non-taxable event. The 1031 Exchange Technique is not “all or nothing”. It is possible to get some cash (which will be taxable), provided it is done the right way. The 1031 Exchange technique can be flexible to meet certain needs. A SUMMARY OF EXCHANGE BENEFITS
1. You will save significant money you worked hard to earn. Tax money is lost forever. The 1031 Exchange Technique makes this loss unnecessary.
2. It is true that you must purchase something new to avoid the tax, BUT the Government helps subsidize your new purchase with your tax savings and, therefore, your purchasing power is significantly increased.
Let Park Place Realty NW Inc. help you increase your investment property buying power! If you live in Seattle or a surrounding area and need information on this service, contact AJ Allen at email@example.com 425-223-6021.