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Many people are unfamiliar with the 1031 tax free exchange of properties. In layman’s terms it is a “like-kind” exchange, wherein a person is actually trading one particular asset (investment property) for another asset (investment property), regardless of whether it is in the industrial, office, residential or retail sector. Many people take advantage of this when real estate markets are in rapid appreciation, as it can result in large capital gains after the sale of a property. The IRS 1031 exchange is basically a tax deferment tool and many of the tax laws have become more simplified. It is not nearly as intimidating as it once was either; however, there are still some complex aspects to the rules.

Every so often there is some misunderstanding concerning the qualifications for property termed as “like kind”. Some examples of eligible properties comprise apartments, duplexes, raw lands, commercial properties and single family rentals. For instance, you can exchange a single family rental for raw land or an apartment building or a commercial building and the transaction can take place anywhere in the United States.

Some property owners are leery of attempting a 1031 tax free exchange as they believe that the sale of the old property and the acquisition of the new property must be completed at the same time. But in reality the 1031 like kind exchange is almost never a two party, or two person trade. Many are delayed exchanges that make use of the 180 days allowed to complete the transaction, from the sale of the one property to acquiring the new property. However, you only have 45 days from the closing of the sold property in which to advise the IRS of the replacement property’s identity.

The rules regarding 1031 exchanges are applicable whenever you intend to sell a property that is not your main residence (and conforms with the like kind guidelines), and you plan to purchase a property inside of 180 days following closing the sale on the property.

In order to keep some flexibility you may want to consider separate exchanges for every property that you are considering relinquishing in a 1031 tax free exchange; however, there is no limit to the number of properties that may be traded during one exchange, which many owners and investors do find useful, especially if they have several properties that they want considered in a short period of time.

If a real estate investor wishes to sell one of their properties and does not want to pay taxes on it, then they will need to follow the 1031 exchange. 1031 exchange properties allow the investor to defer the taxes under certain conditions.

Comments (0) Feb 02 2010

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

With journalists looking for any indication that the recession is over, or any indication it is getting worse, the fall home start numbers are a great chance for some opportunistic reporting. As with every fall, the October new homes starts declined from their summer highs, due to people choosing to stay put for the holidays among a few other factors. With things finally heading in the right direction the media seems to be suffering from a bit of “Chicken Little Syndrome” with an overly negative reporting of the home start numbers.

The government has done what they do to stimulate the housing market, which was first to establish a home buyer tax credit, then to extend it to continue to stimulate the housing market. This did lift the housing market out of the slide it was in and actually allowed for seven percent appreciation across the nation.

With the federal lending corporations Fanny Mae and Freddy Mac reclassifying much of the nation as “appreciating” markets this fall, new lending avenues will open up to home buyers. What this does it allows Primary Mortgage Insurance for lenders, so they will now lend up to one hundred percent loan to value financing again. Prior to this change they were only lending at ninety percent loan to value meaning that buyers would have to come up with ten percent from their own sources.

Among many people, one hundred percent financing is not a very popular idea due to the lack of commitment financially from the home buyer, but it may take this type of financing to stimulate the real estate market, at least temporarily. The widely accepted belief that people should save up 20% of the purchase price for the down payment has been the exception and not the norm for a few decades now, but is still the ideal.

Without a return to responsible saving practices with the average citizen the national housing market will continue to suffer from these periods of volatility. With the last round of tax credits expect to see housing starts back up this spring and the possibility of another high single digit period of appreciation as the recovery is on the way, as slow as the journey may be.

Without stability in the housing market many out of work construction workers will simply not be able to find work, even in the short term.

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Comments (0) Nov 29 2009

When you think about real estate and all of the taxes that can be associated with it, you soon start to take an interest in tax shelters and how to use them. There are many things to learn, but if you would like to keep more of your money and not pay taxes that you do not need to, then you need to learn these things.

One of the methods of a tax shelter is done through a TIC 1031 exchange. TIC is an acronym for tenants in common. In other words, this is when someone owns a piece of one real whole property with at least one other person.

The smaller individual investor tends to prefer a TIC investment because it allows them to invest in larger property that they may not otherwise be able to invest in. This is a great way for them to get in the game on what they see as a wise investment but that they cannot afford to do all themselves.

There are many advantages to a TIC property. One advantage is that a TIC 1031 gives the small guy greater investment power. Also, it gives an investor and opportunity to split their investment geographically.

However, as with all investments, there are some risks with TIC investments. One risk is that the tax code that allows this to work and shelter money can change and cause some real problems for the investors. Another risk is not being able to get out of the investment quickly. If a need arises that you need the money out of your investment, it is not easy to do in this type of investment because you are dealing with other people that have to sign off on it as well.

The 1031 exchange program, in either the traditional sense or in a TIC 1031 can be a great benefit and money saver for investors. This is a great way for you to clarify to the government that you are simply reinvesting your money from one thing to another and therefore really did not make any money from which to pay taxes from.

When doing this type of activity to shelter the money from taxes, it is required by law that you use a 3rd party qualified person or company to handle the money in the interim between selling the first property and reinvesting it into another. This does cost a little bit, but it is not only required but can be very helpful to make sure that you do not make any large mistakes

The tax code line number 1031 is all about this type of tax shelter and that is where it got its name. The 1031 exchange has been a great way and a favorite among some to defer the taxes from the sell on property. However, it should not be used to try to cheat the government. If you do this, it could cost you a lot more in the long run.

A TIC 1031 exchange is a nice way for small investors to shelter their investment money from unnecessary taxes. However, all kinds of a 1031 exchange are beneficial for investors.

Comments (0) Oct 31 2009