1031 Exchange
I pride myself on my ability to assist my clients through the 1031 exchange process. The information below is intended to help you understand the basic concept of a 1031 Exchange; it is not intended to supply anyone with the full knowledge need to complete a smooth 1031 transaction. As with most things, there are layers of information needed to make things go as they should and of course each specific situation is different. Please call me directly to discuss your specific situation or use the form below and I would be glad to consult you on your specific transaction. - Cindy
In a typical transaction, the property owner is taxed on any gain realized from the sale. However, through a Section 1031 Exchange, the tax on the gain is deferred until some future date.
Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment. A tax-deferred exchange is a method by which a property owner trades one or more relinquished properties for one or more replacement properties of "like-kind", while deferring the payment of federal income taxes and some state taxes on the transaction.
The theory behind Section 1031 is that when a property owner has reinvested the sale proceeds into another property, the economic gain has not been realized in a way that generates funds to pay any tax. In other words, the taxpayer's investment is still the same, only the form has changed (e.g. vacant land exchanged for apartment building). Therefore, it would be unfair to force the taxpayer to pay tax on a "paper" gain.
With a properly structured 1031Exchange and investor sells a property and then reinvests the funds into a new property and defers all capital gain taxes.
An investor has a $500,000 capital gain and incurs a tax liability of approximately $125,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold.
If the investor obtains a cash on cash return of 8% with either an exchange or a purchase, reinvesting $500,000 yields $10,000 more each year than investing the after tax $375,000.
Would you like to know more? What is your situation? Call me at 850-766-3682 or use the form below for a prompt reply.
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