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The Starker Exchange Trust, or the 1031 exchange as it is also called, can be used by an investor who wishes to sell some of their investment property but they do not want to pay taxes on it. The 1031 exchange real estate deal will allow the seller to defer the taxes if they purchase another property that is the same price as the one they want to sell. Of course, there are strict rules regarding this exchange.

If you own a company or investment property, then you might be able to derive benefit from this trade and quite possibly save quite a bit of money, simply by exchanging assets rather than than selling them. A “like kind” exchange under the IRS 1031 Exchange is applicable to individual possessions and real estate and might save you both state and federal taxes, anywhere from around 15 to 36% per dollar gained, according to your particular state’s tax rate.

In order to take advantage of this you must use a Qualified Intermediary (QI) to facilitate your exchange in order to satisfy the Internal Revenue Service’s requirements of a valid 1031 exchange. This also works to your advantage as using a trained QI will help ensure that the exchange is approved by the IRS. Their involvement includes participating on behalf of the taxpayer by buying and selling the assets and holding the funds for the taxpayer.

When the sale of your property has gone through, you’ll have 45 days to declare the prospective replacement property or business that is the 1031 like kind exchange of the property that was sold. Fortunately, all real estate is considered “like kind” so you can trade an office building for land, and the like. Subsequent to approval, you must acquire your like kind property within 180 days from the date you sold your old property. In order to defer 100% of the taxes from the sale, you need to meet two stipulations with the new property; first you have to purchase a property that’s of equal or greater value than your original property. Then you must use 100% of the net proceeds from the other property to pay for the new property.

In order to be in compliance with the 1031 rules, the last step is to be sure that the person who sells the property is the same one who buys the property. If the real estate that you sold was titled to you individually, then the new property will have to be titled to you as well. In order to be sure the 1031 exchange is approved the same holds true if the original property was titled to a corporation or partnership; the new property has to be titled to the same corporation or partnership.

A 1031 exchange is generally used by someone who wants to sell an investment property yet do not want to pay any taxes. A 1031 tax free exchange will allow the seller oto defer the taxes as long as they purchase another property which costs the same or more.

Comments (0) Dec 31 2009