When selling a business and an investment property, a gain is realized, (Internal Revenue Code) I.R.C. Section 1031 provides an exception that allows the tax on the profit to be postponed if the investor invests the proceeds in like-kind property with the help of a 1031 exchange consultant. Gain that is deferred under like-kind exchange of I.R.C. Section 1031 is tax-deferred, but not tax-free.
Definition 1031 Exchange
Do you know how does a 1031 exchange works? There are certain rules to consider. A properly structured 1031 exchange allows the investor to sell a property, to reinvest the proceeds and to defer capital gain taxes.
IRC Section 1031 (a)(1) states that:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or investment if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or investment.”
To understand the stability of a 1031 exchange offers, consider the following example for investors:
• An investor has a $300,000 capital gain and acquires a tax liability of nearly $70,000 in combined taxes ( federal and state capital gain taxes, and depreciation recapture) when the property is sold. Only $230,000 remains to reinvest in other real estate property.
• If we suppose 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a property worth $920,000.
• If the same investor chooses to do a 1031 exchange, however, the entire $300,000 of equity would be able to reinvest in the purchase of $1200,000 in the real estate property, with the same loan-to-value ratios and down payment as above.
• Do you know the power of the 1031 exchange? What makes 1031property the 1031 Exchange Experts? Walking client after client through the process and years of experience has made all possible for us.
“B.A.S.I.C.S” of the 1031 Exchange
- Begin by agreeing on your purchase property
- Ask to speak with an expert here at 1031property
- Send us your information about Title Company
- Inform your Dealer
- Contact with your C.P.A. let them know what you are doing
- Sit at the back and let us do the work
Our coordinators and 1031 exchange consultant will work closely with you, your Realtor, your Title Company, and your CPA to make sure that you will not be only getting the real deal, but also the best customer service in the industry. We don’t mess around with your time or your money. We guarantee that you get segregated accounts, and we won’t let you miss your 45- or 180-day deadlines.