Learning From A 1031 Exchange Company On How To Start Saving Money By Deferring Taxes

To start a 1031 Exchange, you first check with their CPA or accountant. You and your CPA need to figure out how much you would have to pay in taxes if you just sold the property outright. Your CPA can determine your adjusted basis in your property. Once your basis is known, you can then determine what the “normal” capital gain tax liability would be; and, also the amount of taxes that would be due to “depreciation recapture”, which is currently taxed at maximum rate of 25%. Note: The rate of capital gains taxes is higher for the portion of the gain that is attributable to depreciation.

Normal appreciation can be determined by your CPA or accountant from the natural increase in the value of your property. Normal appreciation is currently taxed at a maximum rate of only 15%. If you are in a state with an income tax or state capital gains tax, your CPA might also determine the amount of state and municipal tax liability.

Once all of the tax liabilities have been determined, an informed decision can be made as to whether to sell the property outright or to utilize the benefits of a 1031 Exchange. Typically, the cost of doing a 1031 Exchange is far less than the tax bill if you just sold the property outright.

Once the potential taxes are determined, a Qualified Intermediary should be brought in to help you complete a 1031 Exchange. Also, you need a written purchase agreement signed by both you as the seller and your purchaser stipulating your desire to sell your relinquished as part of a 1031 Exchange.

In addition, it is a good idea to add a stipulation or clause in the purchase agreement stating that you want to complete a 1031 Exchange with regards to the property and that the purchaser agrees to cooperate with such. You have now laid the basic groundwork for the closing. For sample cooperation clause go to http://www.1031podcast.com.

At the closing, the sale will become complete. The deed crosses the desk to the purchaser, and the net sales proceeds are paid directly to the Qualified Intermediary. This starts the 1031 countdown. The day after the closing is considered “day one” in the forty-five day identification period. During the forty-five days, you must identify in writing the property that you want to purchase as your replacement property. This “day one” is also the start of the 180 day exchange period that you have to complete the 1031 exchange and acquire your replacement property.

Now, I will review the steps you need to make in order to complete a 1031 Exchange transaction. The first step is to determine the capital gains tax bill, including depreciation recapture and state and local taxes. This step would be performed by your CPA or accountant. The next step is to determine if the 1031 Exchange process would be of benefit to you. This step would be made by your CPA or accountant with the help of a 1031 Exchange Qualified Intermediary. In step three, you should document your intent to sell the property to the purchaser, as well as your desire to complete a 1031 Exchange by inserting appropriate text in your purchase agreement.

If you do all of the above, you will start the process of deferring taxes and keeping your money working for you.

United States investors can save a lot of money by utilizing 1031 tax exchanges to defer all of their capital gains tax on the sale of investment property. 1031 exchanges are like an interest free loan from the U.S. Government.

You Don’t Have To Pay Your Capital Gains Taxes

Property investors often mistakenly sell their investment property or business and wind up needing to pay Uncle Sam thousands of dollars in capital gains taxes. They may not be aware of the tax laws in effect that provide them with the opportunity to retain their capital gains taxes on the sale of their business or investment property.

This law defers and can even eradicate taxes you would normally have to pay if you were selling your property. However, the money you make from selling your property must be used exclusively to purchase a like-kind property that you also intend to use for business or investment purposes.

Using a 1031 exchange is like a carpenter using a hammer to drive a nail, it gives him so much more leverage – and likewise the money you can save can be leveraged to purchase even more property to compound your wealth.

The 1031 Exchange provision has saved investors millions and millions of dollars, and it is well worth your time to explore the benefits of it for yourself. In order to reap those rewards, there are some specific procedures you need to follow.

Be sure that you select qualified intermediary (A.K.A. “Q.I.”) with a solid track record and professional reputation. Dealing exclusively with doing 1031 exchanges, a Qualified Intermediary is an expert with the facilitation of such a deal.

Your Q.I. provides a written agreement to change the transfer from and outright sale to an “Exchange” then transfers your relinquished property (that you are selling) and takes that money and uses it to purchase your replacement property on your behalf.

You must abide by the following 1031 rules to qualify for an exchange:

1. Firstly, the investment property that you are replacing must have been used for investment purposes or use in a trade or business and must be “like-kind” (i.e. US real estate for other US real state).

2. Second, you must find a replacement property if you haven?t already, clearly identify it in writing to your Q.I. it within 45 days. It is necessary to close on the sale on the replacement property within one 180 days.

3. To defer your capital gains taxes, all of the proceeds from the sale of the first property must be used to purchase your new replacement property.

Follow these 1031 rules and you will be in the best position to faciliate your exchange. The procedure is simple enough but even if the path seems a little complicated from time to time, it will be well worth it with the money you will save. Do yourself a favor and keep your capital gains by using a 1031 exchange instead!

Investors in the U.S. can save big money by using a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from the IRS.

Watch the video on 1031 Exchange Rules to learn more.

What You Should Know About Closing Expenses On 1031 Exchanges

When closing on the sale of a property, you will likely incur a variety of expenses, and you may find yourself wondering what is and isn’t acceptable to debit off your closing statement. This is particularly important when you are making a 1031 exchange.

Any proceeds or cash benefits you receive from a 1031 transaction are known as boot. Boot is not part of a like-kind exchange, and is therefore considered taxable.Closing on a sale will always carry associated costs such as agents’ commissions and deed recording fees. It is acceptable to debit these off on your closing statement, because they do not represent any extra cash benefits for you. Expenses such as prorated rent and security deposits that must be transferred to the new owner are another story.

The correct way to deal with these is to write the owner a check from your own operating account. Debiting these expenses to your closing statement would result in a cash benefit in that money in your operating account would be freed for your use, and this money is considered to be boot.

You should be equally wary when you are closing on the your replacement property, especially in regard to fees related to the acquisition of new debt. Just as expenses such as security deposits and rent proration on the sale of your old property must come out of your own pocket, so must loan origination, underwriting and processing fees.

The message you should take away from this article is that it is best to simply pay these kinds of expenses out of your own account rather than making a risky attempt to walk out of a 1031 exchange with extra cash in your pocket. The IRS has pursued litigation against investors who have tried these kinds of tactics, one notable example being the case of the Commissioner v. Garcia.

U.S. investors can save big money by using a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is almost like getting an interest free loan from Uncle Sam!