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Home | Finance | Real Estate In a typical property sale, an owner has to pay taxes on any gain. In some cases, a 1031 exchange does not make sense or is not practical. If an investor is trying to reduce his real estate asset allocation, or if a limited partnership has 20 investors with diverse interests, a 1031 exchange would not make sense. In a properly executed Section 1031 exchange, the realized tax is deferred. These transactions are sanctioned under Section 1031 of the Internal Revenue Code and are often referred to as "1031 exchanges," "like-kind exchanges" or "tax-deferred exchanges." What is a 1031 Exchange? A 1031 exchange provides the investor the opportunity to defer 100 percent of realized capital gains. This equates to an interest-free, no-term loan on taxes due until the property is cashed-out. Most often, the capital gain taxes are deferred indefinitely because investors continue to exchange from one property to the next, and increasing the value of their real estate investments with each exchange. By not utilizing a 1031 exchange, property owners or investors would necessitate the payment of capital gain taxes in amounts, which can exceed 20 percent to 30 percent, depending on the appropriate combined federal and state tax rates. In other words, when purchasing replacement property without the benefit of a 1031 exchange in business real estate, your buying power is dramatically reduced and represents only 70 percent to 80 percent of what it did previously. What Qualifies for a 1031 Exchange? Properties that qualify for a 1031 exchange include any real estate used for business, trade or investment. Examples of 1031 exchange properties include apartments, office buildings, multiplexes, single-family or condo rentals, raw land, farms, ranches, and commercial and industrial properties. Also, you are not limited to exchanging for property similar or exactly like your existing property. Examples of qualified 1031 like-kind properties and like-kind exchanges:
Identification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th day fall on a Saturday, Sunday, or legal holiday. Exchange Period: The replacement property must be received by the taxpayer within the "exchange period," which ends within the earlier of ... 180 days after the date on which the taxpayer transfers the property relinquished, or ... the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs. This 180-day rule is very strict and is not extended if the 180th day should happen to fall on a Saturday, Sunday or legal holiday. Article Source: http://www.articlewheel.com
Federal tax reduction, cost segregation, business valuation, tax reduction,
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