Whenever you sell land, investment or business property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in other investment property. There are very specific requirements that you must follow so that your exchange will qualify. All proceeds from the original property sale must go through the hands of a “Qualified Intermediary” (QI) and not through your hands or the hands of one of your agents. Failing this step forfeits your ability to do an exchange.
The original property sale and the purchase of replacement property must be structured properly in order to qualify for tax deferred treatment under a 1031 Exchange. The QI will complete the necessary legal documents to ensure that you are in compliance will all laws, regulations and rulings.
With the successful use of a tax‐deferred 1031 Exchange depending on your situation, a savings of 20% to 40% of capital gains tax and/or depreciation recapture on the sale of investment property may be achieved. Exchange after exchange can be done creating a positive compounding effect by reinvesting the additional deferred taxes on each subsequent exchange. Based on current tax law, the deferred
tax liability can ultimately be forgiven upon death of the investor, giving heirs a stepped up basis on inherited property, and completely eliminating the deferred capital gain.
Alongside your tax accountant and attorney, we'll guide you toward suitable replacement properties that meet your specific goals and needs. We work nationwide with Accredited Investors seeking the benefits of a successful 1031 exchange.
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