Real Estate - 1031 Exchange Intermediary Services
In
1997, Congress passed new, generous rules that effectively eliminate
capital gains tax on the sale of most people's primary residence. However
if you are selling any other classification of real estate investment
property, business property, vacation home, you will be taxed on your
profit unless you use the IRS Section 1031 Exchange Rule to defer your
taxes.
Despite recent reductions in capital gains tax rates, why pay taxes on the sale
of investment real estate when you can defer that tax and increase your buying
power on a bigger and better property?
Through the use of a “1031 Exchange”, The Billah Law Firm can assist
in putting off taxes you would otherwise pay on the sale of investment property.
In conjunction with the IPX1031, and other Qualified Intermediaries, we assist
clients to defer tax upon the sale of investment real estate.
NOT SURE WHAT 1031 EXCHANGES ARE ALL ABOUT?
Read our 1031 FAQ below.
WHAT IS AN EXCHANGE?
Use of the word "Exchange" is essentially a "legal fiction".
What happens in the real world is that a sale and subsequent purchase are made
interdependent using the Exchange technique and special paperwork. (You sell
to whomever wants to buy and then buy whatever you want from any Seller.) These "exchanges" are
often called Starker Exchanges or Tax Deferred Exchanges, but a better name would
be The Investment Roll Over Rule. Your money rolls over into a new purchase.
WHEN SHOULD YOU USE THE TECHNIQUE?
Anytime you are selling real estate that is not your primary residence and you
are faced with an onerous capital gains tax, use the Exchange technique instead
of simply selling. Virtually any new purchase will qualify as your replacement
property. The diagram below will give you the idea.
WHY SHOULD YOU DO AN EXCHANGE?
Tax money paid to the government is immediately lost forever and forever is a
long, long time ! When you purchased the property, did it occur to you that you
had made the Government a silent partner who would want to share the profits?
Think of how long it would take you to save money lost to taxes and to rebuild
that hard earned equity. Fortunately, you con avoid this scenario using the Exchange
Technique.
HOW DO YOU DO AN EXCHANGE?
Your sale and subsequent purchase must take place within a 180 day envelope.
Special paperwork links these two events together and allows them to qualify
as an Exchange. Sale proceeds must be deposited in a special account during the
period between the sale and purchase. Exchange Rules require that you designate
a Qualified Intermediary to perform these services. Follow the explanation below
to see how it works:
1. The Exchangor enters into a Contract to sell to anyone who wants to buy.
2. The Exchangor enters into an Exchange Agreement with a Qualified Intermediary.
3. The Contract for Sale between the Exchangor and the Buyer is assigned to the
Qualified Intermediary.
4. The Closing takes place, the Exchangor deeds the property directly to the
Buyer and the sale proceeds are deposited with the Qualified Intermediary.
5. Within 45 days after Closing, Exchangor identifies possible replacement property
to the Qualified Intermediary.
6. The Exchangor enters into a Contract to purchase whatever property is desired
from the Seller of that property.
7. The Contract for Sale between the Exchangor and the Seller is assigned to
the Qualified Intermediary.
8. The Closing takes place within 180 days of the first closing, Seller deeds
directly to the Exchangor, and the monies held by the Qualified Intermediary
pay for the purchase.
9. The Exchange has been completed and no tax is owed. What really occurred is
a Sale and subsequent purchase that were made interdependent through use of the
Exchange technique and use of a Qualified Intermediary.
ARE THERE ANY RULES OR REQUIREMENTS?
There are three requirements your transactions must meet in order to have a completely
non-taxable event.
The Exchange Technique is not “all or nothing”. It is possible to get some cash ( which will be taxable) provided it is done the right way. The Exchange technique can be flexible to meet certain needs.
