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When you sell real estate you have to pay capital gains tax on the gain from the sale of the property. The gain is caused by either taking depreciation deductions for tax purposes or from the appreciation over time of the property.

The IRS Section 1031 Exchange offers the major exception to defer capital gains tax normally due on the sale. With the 1031 exchange you can sell an investment property or business, and utilize the proceeds in the purchase of a property of equal or greater value without having to pay capital gains tax.




 
There are several benefits to consider with a 1031 Exchange. For example, you could use the proceeds to buy bare land and construct a building on it, consolidate several properties into one to ease management and put all funds into a more valuable property, take one property and diversify into several properties, and purchase commercial property from residential proceeds.
 
To qualify you need to sell property that was held for business or real estate purposes for the purchase of other business or investment property. However, YOU CANNOT sell investment property for the purchase of personal property, as this would not qualify for a tax deferral under section 1031.
To avoid any taxable gain you must reinvest all the Capital gains and purchase property of equal or greater value.
 
From the date that your old/former property CLOSES, you have 45 days to declare one or more properties you will purchase.
 
From the date of CLOSING of your old/former property you have 180 days to CLOSE one or more properties on your 45-day list
 
The entity that is on the title of the old/former property must remain on the new property title.
 


Selecting the right QI (Qualified Intermediary) is very important to the exchange process. There are no Federal or State laws that control who can be a QI. However, there are laws that state who cannot be a QI. That includes your lawyer, CPA, bank, or family members, etc.

We would be happy to give you contact information for a qualified QI. Because we help investors every week to purchase property with 1031 exchanges, we will make it a positive experience for you. Be sure to fill out our property request form and indicate that you would like to purchase using an exchange, and in the comments request QI contact information.
The reverse exchange was established to defer the capital gains taxes in the same manner as the 1031 exchange. The reverse exchange in more complex and more costly to set up than the standard 1031. You should consult a tax advisor and exchange professional to assist you.

The major difference in the Reverse vs. Standard 1031 Exchange is that you can purchase property for the exchange before you sell your old/former investment property.

You must take title to the new property in what is called an EAT (Exchange Accommodations Titleholder) which is set up by the Exchange company. The EAT takes title to the new property, holds or parks it until the old closes. Then the EAT transfers the new property to you.

The reverse exchange must be completed with 180 days from the date the EAT purchases the new property for you.
A qualified intermediary, sometimes known as an Accommodator, can only handle the proceeds from the sale of the old/former property. You cannot personally touch the money nor can a friend, broker, employee, CPA, or attorney to held the money for you.




 
The information provided on this web site is for general informational purposes only and should not be relied upon to be legally correct. Be sure to contact the proper professional to assist you with a 1031 Exchange.

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