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Getting
More
by exchanging rather than selling
If you own business or
investment property, you may be able to save thousands
of dollars by exchanging your assets instead of selling
them.
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Phil
Ladd is
the Director of Reverse Exchanges with
The 1031 Exchange Experts, LLC
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A like-kind exchange under Internal
Revenue Code Section 1031 allows you to defer the taxes
on capital gains by exchanging rather than selling.
This tax deferral is available for both real estate
(dirt and everything screwed into it) and personal
property (things you can pick up and move). This can
save you in Federal and State taxes anywhere from 15%
to 35% on each dollar of gain realized, depending on
your state’s tax rates.
There are a few basic steps that will
be required under code section 1031 to enjoy this great
financial advantage.
Step 1. A ‘Qualified Intermediary,’ or ‘QI,’ must
be used to facilitate the exchange to satisfy the IRS
requirements for a valid 1031 exchange. Using a competent
QI helps to ensure an exchange will be OKd by the IRS.
The QI participates in the exchange on the taxpayer’s
behalf by buying and selling assets, and holding the
sales cash for the taxpayer.
Step 2. Once you have
sold your business or investment property, you will
have 45 days to identify potential replacement property
that is of “like-kind” to
the property sold. Fortunately, all real estate is
considered like-kind, so you can trade raw land for
an office building, and vice-versa. ‘Personal
property,’ such as airplanes and heavy machinery,
is different. Those must be traded for the exact same
type of thing. For example: a bulldozer must be exchanged
for a bulldozer; or an airplane must be exchanged for
an airplane, etc.
Step 3. You must obtain
your like-kind property within 180 days from the date
of the sale of your Old Property.
Step 4. To be able
to defer 100% of the taxes from your sale, you must
meet two requirements with your New Property. First
you must purchase a property that is of equal or greater
value than the Old Property. Next, you must use 100%
of the net proceeds from the Old Property to obtain
the New Property.
Step 5. Finally, the
person or entity that sells must be the same person
or entity that buys. In other words, if the real estate
you sell is titled to you as an individual, (ie: “Bill
Smith”),
then the real estate you buy must be titled to you
as an individual. Likewise, if your real estate is
titled to an entity like a corporation or a partnership
(“Bill Smith, LLC”), then that same corporation
or partnership must be the entity that takes title
to the New Property.
If you follow these basic steps, then
you will be able to take advantage of the benefits
of doing a 1031 exchange and defer paying thousands—perhaps
even hundreds of thousands!—of dollars that you
would otherwise pay in taxes.
But enough about us. What
can we do for you?
Nationwide, toll-free: 866-694-0204
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