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Volume VII  Issue 3  

3rd Quarter 1999 

                                             

Beth Pressler, CRS, GRI, LTG

Higbie Maxon Agney, Inc. REALTORS®
83 kercheval
grosse pointe farms, mi 48236
313.886.3400

Toll Free 1.888.886.4060

 

 

1031 Tax Deferred Exchanges

What is IRC Section 1031?

An owner of investment property can exchange property and defer paying federal and state capital gain taxes (up to 39.6% + applicable state taxes) if they purchase a "like-kind" property following §1031 of the Internal Revenue code and its rules and regulations. This allows investors to use all of their proceeds from a sale to: leverage into more valuable real estate; increase cash flow; diversify into other properties; or consolidate into one property.

What is "Like-Kind" property?

Provided it is held for investment - "like-kind" property can include, but is not limited to, any of the following:

Single Family Rental

Vacation Home

Duplex

Apartment

Commercial/Office

Retail

Industrial

Raw Land

"Like-Kind" is not limited by use or number of properties exchanged - a single family rental can be exchanged for raw land, or apartments or a commercial building. In addition, properties can be exchanged anywhere within the United States.

§1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."

Does an exchange require a "swap" with another party?

No. This a common misconception. Most exchanges are as easy as a normal buy/sell transaction. In a standard delayed exchange, the Exchanger retains a "Qualified Intermediary" to hold the sale proceeds, sells to any buyer and purchases the "replacement property" from any seller.

Despite another common misconception - there is no need for double deeding, double closings, double title insurance nor double transfer taxes.

The Exchanger, from the closing on the relinquished property or properties, has 45 days to identify and 180 days to close on the potential replacement property or properties.

 

When is a §1031 Exchange Applicable?

Whenever the owner of a non-owner occupied property held for investment intends to SELL the property and BUY another "like-kind" property within 180 calendar days following the closing of the relinquished property.

Paramount to any exchange is a competent and experienced Intermediary. Once such company is Asset Preservation - they can structure, consult, guide and create documents necessary for the exchange transaction from beginning to end.

Call me with further details about §1031 "like-kind" exchanges. v

 

        Thanks to Stewart Title and Asset Preservation for providing information on  §1031 Tax Deferred Exchanges.

Email me at: beth@bethpressler.com

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