With the new school year starting, timing is perfect for
a 1031 Exchange refresher! 1031 Exchanges are once again an important
strategic investment tool for many investors and businesses as the real
estate investment marketís momentum continues to escalate. Following
are key review points when considering a 1031 tax-deferred Exchange:
- 1031 Exchanges are used to defer taxes on investment
real estate and personal property. Some personal property examples are
business equipment, farm machinery, franchise rights, corporate jets,
livestock, boats, trucks, fleets of autos, buses, race horses, artwork,
collectibles, musical instruments, and distribution routes.
- 1031 Exchanges simply defer taxes. Section 1031 is
not a tax loop
hole or tax avoidance, but sound tax code that has been used for almost
a century to promote the US economy.
- 1031 Exchanges allow taxpayers to defer capital gains
depreciation recapture tax, and the investment income tax imposed by
the Affordable Health Care Act, and state tax.
- To completely defer
payment of any capital gains taxes, taxpayers need to purchase new
property with a value equal to or greater than the property that is
being sold. In some cases the taxpayer may purchase a property of
lesser value and still defer a significant amount of tax.
- 1031 Exchanges follow strict time limits. Once the
property is sold, generally speaking, taxpayers have a total of 180
days to purchase Replacement property. The taxpayer must identify the
new property(ies) that they will purchase within the first 45 days of
the 180 days.
- Exchanges between related parties are allowed but
must be followed.
- Taxpayers must utilize the services of a Qualified
(QI), such as IPX1031®, when participating in a 1031 tax-deferred
Exchange. The QI provides guidance, documentation and secures the
taxpayerís funds between the sale and purchase of properties.
are not regulated by the Federal government and most State governments.
Therefore, it is up to taxpayers to ascertain the competency and safety
of their chosen QI. Questions that taxpayers should ask include:
owns the 1031 QI and how financially stable are the owners?
- What criteria does the 1031 QI use to pick its
- Does the QI have a Fidelity Bond, Errors and
Omissions insurance and
a Corporate Guaranty?
- There are many non-tax reasons to exchange. 1031
Exchanges can be
used as an estate planning tool, to diversify or consolidate
portfolios, to increase cash flow, to set a new depreciation schedule
or to exchange out of fully amortized properties.
- Taxpayers should always seek tax advice from their
planner, tax attorney or CPA for their specific tax and investment
goals and situation.
Investment Property Exchange Services, Inc. (IPX1031®)
is the leading national Qualified Intermediary providing a full range
of tax-deferred exchange services including forward, reverse and
build-to-suit transactions. We look forward to helping you and/or your
clients maximize qualifying investments through a 1031 Exchange
strategy. Visit www.ipx1031.com
for more information or contact us with
IRS Disaster Relief Updates