William Raveis Real Estate and Home Services

Tax Deferred "like kind" property exchange

If you own an investment property or possibly a property you have used in a trade or business, you may be eligible to sell your investment property, and buy another while deferring capital gains taxes on the initial sale. This would allow you to purchase a property that might be geographically closer to where you live or vacation, a property that might be simpler to maintain, a property that might generate a better cash flow, a property that might suit your portfolio goals better (growth of investment OR income from investment). This exchange is often referred to as a "1031 exchange", which is in reference to the section in the Internal Revenue Code, "Internal Revenue Code Section 1031."

The information provided here is simply to alert buyers and sellers of investment real estate to the possibility of this, but any and all questions about your own particular situation need to be reviewed by your tax professional in complete detail to be sure your properties qualify.

In brief, if you plan to do this, there are several basic and critical rules that MUST be adhered to (again, consult an expert before making any commitment to buy or sell).

When a property is sold, the proceeds from that sale must be held by a qualified "intermediary" (not your Accountant, Lawyer or Real Estate Broker), until the "replacement" property is purchased.

The "replacement" property (or properties) must be identified within 45 days of the sale of the 1st property, and the transaction to purchase that replacement property must be completed within 180 days.
 
The properties must all be located within the United States. Foreign properties are not eligible on either side of the Exchange (purchase or sale).

There are Qualified Intermediaries who advise on tax deferring strategy, and of course your own Financial Advisor, Accountant or Estate Planning Attorney (or all of the above together) should be involved from your initial consideration of this plan. As Realtors, and licensed Agents, we cannot specifically advise you, but we can suggest professionals with whom you may begin your research.

FINALLY, this information is provided as a starting point for my website visitors and is in no way to be construed as offering legal or financial advice for any readerís individual situation. It is imperative that you seek competent legal and financial advice before proceeding.