A 1031 TAX
EXCHANGE is an exchange of
property in which capital gains tax deferral is available to real
estate owners who sell their investment, rental, or business real
estate, and reinvest the proceeds in qualified replacement
properties. The replacement property must be similar in nature (to
be used for investment, rental, or business) and therefore
considered “like-kind”.
•
NNN1031.com - A division of National Retail
Properties, Inc., a New York Stock Exchange-traded real estate
investment trust. Sells single-tenant retail and restaurant
properties for 1031 exchanges.
•
TM1031Exchange
-
Net-leased,
tenants-in-common, office, retail, multi-family, industrial, land,
hospitality.
Financial Calculators
•
Simple Mortgage
Calculator
•
Capital Gains Tax
Exposure Calculator
Deferred Exchange
What is a like-kind exchange?
A like-kind exchange, also known as a 1031 exchange is a technique
for deferring the gain on the sale of property by re-investing the
proceeds in like-kind property.
What is the primary benefit of a Deferred Exchange?
The primary benefit for owners disposing of business or investment
held property is the opportunity to Defer the payment of Capital
Gains Tax.
What is a deferred/delayed Exchange?
You surrender your relinquished property at one time and acquire the
new replacement property, no later than 180 days from the closing of
the relinquished property, or the due date for the tax return for
the year of the sale, whichever is earlier.
Why does our government allow Deferred Exchanges?
The government perceives it as a continuity of investment.
General
Questions on 1031
Can I add an additional investor in the new piece of property I
am acquiring?
Yes, but he must be an Investor and not a partner.
How much time do I have?
You will have 45 days from the day you close your relinquished
property (escrow) to identify the candidate(s) you wish to acquire,
this is known as the Identification Period. You will then have an
additional 135 days in which to close your replacement property
purchase. You cannot exceed the maximum 180-day period for the
exchange to take place. This is known as the Exchange Period. The
IRS has absolutely no forgiveness for missed time deadlines for any
reason.
Can I build on property I already own?
Not with deferred tax dollars.
Can I use a Build to Suit Exchange as a replacement property?
Yes, but you must take title within 180 days.
How will this affect my Estate Planning?
If you hold the exchanged property until death, your heirs receive a
stepped up basis to fair market value, and the capital gain is never
taxed. Which means the income taxes that were deferred by you now
become permanently tax-free to your heirs.
If I want to use a 1031 Exchange, but my co-owner wants to cash
out and take his money, is that allowed?
Yes, however, his portion will be subjected to the tax on any
profit/gain. Partnership interests cannot be used as exchanges.
Can I exchange my property for a property in another state?
Yes, anywhere in the U.S.A.
What types of real estate qualify for a 1031 Exchange?
- Vacant Land
- Farm/Ranch
- Office Building
- Rental House
- Warehouse
- Rental Condo
- Apartment Building
- Resort Rental
- Mini Storage
- Shopping Center
- Motel/Hotel
- Owner-Occupied Double/Duplex
- Plus: any other commercial, industrial, business, or
investment-held property. The only provision where 1031 exchanges
don't qualify is when you are a dealer in real estate. This simply
means that if a person or corporation acquires property with the
intent of a fast re-sale, then the transaction won't qualify. The
IRS has limited exchanges to those properties held for productive
use in a trade or business or for investment, and necessarily
excludes those held primarily for sale.
What are the requirements to do a 1031 Deferred Exchange?
The seller must dispose of either business- or investment-held
property. The seller must acquire other business- or
investment-held property of equal or greater value than the value
(sale price) and existing debt of the property being sold, and all
of the equity from the property being sold must go into acquiring
the replacement property.
Can I trade out several smaller properties for a larger one?
Yes, as long as the value of the properties are equal.
Is a Partially Taxable Exchange possible?
Yes, you acquire with part of the funds, and you pay taxes on the
balance of the funds.
Can I refinance my old or new property before or after I have
made an Exchange?
Yes, the benefit is that the proceeds from financing or re-financing
are tax-free.
Can I hold a mortgage on my relinquished property and still have
an exchange performed?
Yes, the mortgage payment received is considered an installment sale
and is subject to taxation as deemed received. The balance of the
taxpayer's equity can be used as a deferred exchange.
Is a Leasehold Interest considered like-kind?
Yes, leasehold interest may be either relinquished property or
replacement property in an exchange as long as there are 30 or more
years remaining on the lease.
What happens with a failed exchange?
If a taxpayer executing an exchange does not acquire a replacement
property and the exchange period straddles two tax years, the
transaction becomes an installment sale and is taxable in the
subsequent year.
Can I have an Exchange performed on personal property?
Yes, 1031's pertain to personal properties too. Some examples would
include: equipment, furniture, aircraft, vehicles, vessels,
livestock, and coins.
Will I ever have to pay taxes on the property?
Only when you finally sell the property you exchanged into, without
doing another exchange. You can continue to roll over sold
properties into new properties without any tax obligation.
When was the idea of a 1031
Exchanges developed?
In 1921 the first exchange laws were enacted. Changes have been
made, but it wasn't until 1991 when the Regulations were made
available that this concept of dispositions has become very popular.
The theory is that if one does not cash out of an investment, the
economic gain has not been realized in a way that produces the cash
to pay the tax.
What is the term trading up?
It is adding money to an exchange and acquiring an even more
expensive piece of property than you sold. Or, you can increase your
debt, but you must use all of the proceeds from the relinquished
property as well.
Mapping & Aerials
TerraServer
One of the world's largest online databases, providing free public
access to a vast data store of maps and aerial photographs of the
U.S.
GlobeXplorer
The World's Largest Online Library of Aerial / Satellite Imagery and
Maps.
Google Earth
Whether you make business decisions where location is a critical
factor, or simply love to explore, Google Earth takes you there.
Quickly zoom from space down to street level and combine imagery, 3D
geography, maps, and business data to get the total picture in
seconds.
Mapquest
A world leader in online mapping and driving directions, providing
destination information solutions to business partners and consumers
anytime, anywhere.
