Danita Vigil & Tracey Wilson, CES®
Colorado & Wyoming
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1031 Resources & Information
Does Colorado have any special 1031 Exchange rules or regulations?
The state of CO has a 2% Withholding Tax, but this can be easily and completely avoided by doing a 1031 Exchange. For 2023, the Colorado income tax rate is now 4.44%, and is deferred in the 1031 process. Make sure to consult with your tax advisor, attorney, or accountant as IPX1031 cannot provide tax or legal advice.
2% Colorado Withholding info:
• Corporations that do not maintain a permanent place of business in Colorado, and nonresident individuals, estates, and trusts are subject to Colorado income tax withholding on the sales of Colorado real estate in excess of $100,000. The withholding tax, if required, will be the smaller of:
> Two percent (2%) of the sales price, rounded to the nearest dollar, or
> The net proceeds from the sale. (“Net proceeds from the sale” means the net amount that would otherwise be due to the seller on the settlement sheet.)
• The tax is withheld at the time of closing by the title insurance company, its agent, or any other person providing closing and settlement services. The tax is submitted to the Colorado Department of Revenue, where it will be credited to the seller’s income tax account as an estimated tax payment. The seller can claim credit for the estimated payment against the income tax liability when filing a Colorado income tax return for the year of the sale. Taxpayers must file a Colorado individual income tax return to claim the estimated payment credit. [§39-22-604.5 C.R.S.]
• Colorado’s 2% Withholding on the sale of investment real estate can be avoided by doing a 1031 exchange AND by filling out Colorado’s Department of Revenue (DOR) Form 1083, with an election on Page 1, Box 12, Item e, and on Page 2, 5th section: “Affirmation of No Reasonably Estimated Tax Due”. Here is a link to both the two-page form and the accompanying two pages of instructions.
Does Wyoming have any special 1031 Exchange rules or regulations?
The state of Wyoming has no particular 1031 rules or regulations. WY has no state income tax.
What are the benefits of doing a Tax Deferred 1031 Exchange?
The main reason to do an exchange is to defer the tax on gains from the sale of real property – and not have to pay the capital gains taxes immediately, which can be 30% to 40%! Non-tax reasons to do an exchange would be:
a. The property being sold is fully depreciated, so exchanging into a higher value property will provide the taxpayer with a renewed tax benefit of depreciation
b. Property being sold is not able to be refinanced: so exchanging into improved property will support a new refinance loan
c. Property being sold is land and therefore not income-producing (in fact, land can be cash flow negative); but exchanging into improved property can provide positive cash flow
d. Exchanging from a low cash-flow property into a higher income-producing property
e. Relinquished Property is in a stagnant area, and exchange into Replacement Property with greater appreciation potential
f. Exchange into – eventually – your dream-home!
Where can I do a 1031 Exchange? Can I buy or sell out of state or country?
You can sell any investment property (that is held for investment or used to produce income) located anywhere in the U.S. including D.C., and exchange into investment property anywhere in the U.S. including D.C. So, yes, you can buy out-of-state!
What about buying Replacement Property in a foreign country? No, unless you buy in Guam, Northern Mariana Islands, or the U.S. Virgin Islands.
What about selling an investment property located in a foreign country? You can do an exchange but would need to buy or exchange into investment property that is also located in a foreign country.
You cannot sell in the U.S. and buy/exchange into a foreign country; or you cannot sell investment property in a foreign country and exchange into the U.S. – you cannot cross the border, so to speak.
What if my Replacement Property is less than my sales price of my Relinquished Property?
If you buy or exchange into Replacement Property that is less in value than your Relinquished Property, then the amount that you buy down in value, that difference, will be subject to capital gains taxes to the extent of any recognized gain. And the capital gains tax rates can be from 30% to 40%!
To fully defer all of your gains, to have no tax implications, then buy/exchange into Replacement Property that is equal of greater in value than the Relinquished Property (and reinvest all of the net sales proceeds or exchange proceeds).
Or, you can buy/exchange into multiple Replacement Properties to achieve your equal-or-greater dollar amount.
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Danita Vigil, Tracey Wilson & IPX1031 are a winning combination.
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With an office near Denver and Boulder, Colorado, IPX1031, the nation’s largest exchange facilitator and accommodator, provides industry leading exchange services including guidance, expertise, security and key information on 1031 Exchange rules, regulations and strategy. 1031 Exchange experts, Tracey Wilson and Danita Vigil offer you customized solutions to defer capital gains tax and maximize equity in your 1031 like kind investment property.
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