Tax Free Exchanges (Turn your speaker on and click on any of following questions)
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1. Can I exchange for property of less value?
2. Do I have to exchange for the same type of property?
3. Does the exchanges have to been done simultaneously?
4. What is a QI?
5. Will IRS audit a tax free exchange?
6. Can I change the name on the title of the new property?
1031 Exchange Trade your Clogged Toilets for a Resort Condo.
Are you frustrated with clogged toilets, renters who skip and leaking roofs. Would you like to have a resort condo facing the ocean instead of an apartment house in downtown Newark! It is possible.
The Internal Revenue Code Section 1031 can benefit you if you an investor. By deferring taxes, you can increase your flexibility, your net worth and have a resort condo in Myrtle Beach, SC. I did.
Tax free Exchanges allow you to change and diversify your investments. The value of all of the newly acquired property(s) must be equal to or greater than the value of the "old" property(s). The amount received from the sale of the "old" property must be used to purchase the "new" property.
1031 Transfer can be made on Build-to-Suit. Build-to-Suit Transfers are still subject to strict time limits as set by the Treasury Regulations. You can do the Transfer process in reverse. Some time these are called a 1031 Reverse Exchange. A Reverse Transfer is where the replacement property is purchased prior to selling the old property.
Some taxpayers wrongly believe that only real property can be exchanged. This is not true
If your business owns heavy equipment, business jets, trucks, buses, or cars, these can also be a 1031 Exchanged.
What is interesting about the Qualified Intermediaries is that their industry is largely unregulated. Yes, it does have a trade association called the The Federation of Transfer Accommodators (FEA). This Association is a national trade organization. The association is made up primary of legal and tax advisors who are directly involved in Section 1031 Transfers. If your QI is not a member, then, you have very little assurance of their training and qualifications. In fact, some Qualified Intermediaries will do little more in a transfer than fill in the blanks, and if they make a mistake, you pay the tax bill. The only state that requires licensing is Nevada.
When looking for a Qualified Intermediary, watch yourself when dealing with a companies that does not normally do 1031 tax free transfers. Ask for referrals from satisfied 1031 tax free transfer clients.
Choose a Qualified Intermediary that has done many 1031 transfers. The Qualified Intermediaries purpose is here to make sure all the documents and money transfers meet Internal Revenue Service guidelines. Using a Qualified Intermediary with whom one has already a relationship, like a family attorney or estate planning attorney is a no no. This is important because in case of bad paperwork, the Internal Revenue Service might send a big tax bill. You do not want the whole transaction to fall through due to an incompetent or inexperienced Qualified Intermediary.
Ask your Qualified Intermediary if they keep your funds in a separate trust account. If the Qualified Intermediary co-mingles your funds with their funds and someone puts a hold on that account, you could miss your 180 day window and have to pay a big tax bill.
If there is a simultaneous transfer of property is very simple to understand. Because the transfer of the relinquished property for the replacement property occurs at the same time.
Delayed 1031 Tax Free Exchange is more complicated. This is because there is a time gap between the transfer of the property sold Property and the purchasing of the Replacement Property. There are strict time limits for a Delayed Transfer. These are set by the Treasury Regulations.
Both the old and new properties must be for investment. If both properties pass these 5 tests, you can transfer nearly any type of real estate
1 You have 45 days from the closing of your sale to identify the property(s) you may want to buy. You may identify up to 3 property(s). There are no exceptions to this time line!!!
2 You have 180 days from the closing date on your old property to close on the new property. You only have 180 days to close on the purchase of the new property(s) from the 45-day list. There can be no exceptions to this deadline!!!!
3 You must use a Qualified Intermediary. The Internal Revenue Service mandates that you use a Qualified Intermediary to prepare the legal documents, hold the money and the tittle. Your Qualified Intermediary must have been accepted by Internal Revenue Service Qualified Intermediary procedure. They must be disinterested and independent third party. They cannot be your, employee, broker, or even your accountant or attorney.
4 You must purchase the new property and take title to your new property exactly as you held title to your old property. Living Trust are accepted.
5 To defer your tax, you must buy a property equal or higher in value than TOTAL price of the one you sold.
A Qualified Intermediary (QI) is a person that enters into a Qualified Intermediary arrangement with the Internal Revenue Service. They operate under an Agreement. Generally, under the Qualified Intermediary Agreement, the Qualified Intermediary agrees to provide certain documentation and responsibilities during the transfer.
A misconception of exchanging is that, like kind property refers to USE not TYPE. You may exercise your 1031 tax free transfer options to transfer investment proceeds of the sell of an apartment house into ANY type of real estate, for example. an office building, as long as the property is for investment USE.
If you are a real estate investor, now is the time you move your investment property into property where you would like to live. The Internal Revenue Service has created a method allowing real estate investors to defer ALL capital gains taxes by reinvesting sale proceeds into like-kind replacement property. It is called many name such as 1031 tax transfers, Starker transfers, tax deferred transfers, like kind property transfer, '1031 tax free transfer' and delayed transfers, but they are all the same.
IRS will allow you pay no tax when you sell your real estate and do a 1031 Transfer. Any investor can qualify if they know the rules! With a trusted real estate agent and a bonded and insured Qualified Intermediary the tax saving on real estate sales are great. This is one opportunity you do not want to miss.