Thursday, December 13, 2007

The Basics of 1031 Exchange

Many homeowners have heard of a “1031 Exchange,” but few understand the basics of what an exchange actually entails. Today I want to cover just a few of the basics of the process, as it can be an invaluable method of homeownership for investment homeowners.

What is a 1031 Exchange?
Put simply, it is the sale of one property in exchange for the purchase another property of similar value without the required payment of capital gains tax, all performed within a specific time frame. An example of when you might use a 1031 Exchange, as opposed to selling a home and purchasing a new one outright: you want to sell your current vacation home and purchase a new, similar one that has a few better features. You have not yet owned your current vacation home for two years, so you are subject to substantial capital gains taxes when you sell it. If you were to use a 1031 Exchange, you could “exchange” your current home for a new one and be relieved of the capital gains requirement. It is this difference between "exchanging" and not simply buying and selling which, in the end, allows you, the taxpayer, to qualify for a deferred gain treatment. In a nutshell: sales are taxable with the IRS and 1031 exchanges are not.
US CODE: Title 26, §1031. Exchange of Property Held for Productive Use or Investment

Important Rules of 1031 Exchange
1. The total purchase price of the replacement "like kind" property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.
2. All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, "like kind" property.

1031 Timelines and Rules
Identification period – the seller has exactly 45 days from the sale of the original property to identify other replacement property(s) that he proposes or wishes to buy.

Exchange period – the period during which the seller of the relinquished property must receive the replacement property. This period ends exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person's tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier.

If you want to learn more about strategies for buying and selling investment properties, or are interested in Okemo Mountain real estate, please call me at 802-353-1983 or visit
ISellVermontRealEstate.com. To request more information about 1031 exchange, please click here and select the reports you would like!

1 comment:

dcrealtorjim said...

I just wanted to alert you that your blog posts are being cut and pasted on this site:
http://ireference.org
Go to your state and you will see your blog posts.
The person doing this is Damion Flynn
Contact info:
SimplySOLD® Viking Realty
Office Phone: (228) 248-0213
Cell Phone: (228) 365-1883
Alt. Phone: (228) 831-3499
Fax Number: (228) 831-0344
Address: 10585 Three Rivers Rd Suite F, Gulfport, MS, 39503
his email address is: admin@ibwt.com

He has copied several posts from Realtors with out their permission and violated copyrights.

If you gave him permission to post then kindly disregard.
Thank you and Happy Holidays!