Now good time for 1031 exchange. (Insiders Outlook).Exchanging properties is neither special nor new. But people are currently asking tax professionals if now is the right time to invest money in a 1031 exchange. The "your property" for "my property" type of direct exchange has been in practice for a long time, but it is difficult to arrange. Several years ago, in June 1990, it became for real estate investors A real estate investor is someone who actively or passively invests in real estate. An active investor may buy a property, make repairs and/or improvements to the property, and sell it later for a profit. because the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. issued new rules governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. delayed exchanges delayed exchange n. an exchange of property to put off capital gain taxes, in which the funds are placed in a binding trust for up to 180 days while the seller acquires an "exchanged" (another similar) property, pursuant to IRS Code sec. 1031. . Section 1031 of the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. laid out the procedure for turning a sale and purchase type transaction into an exchange. The new rules allow owners of certain real property to sell their property and buy other "like-kind" property by deferring the Capital Gains Tax. The rules give everyone an opportunity to use purchase and sale techniques to structure tax deferred exchanges. If an investor wishes to keep his investment money in real estate, he should consider the tax advantages of a deferred exchange. The like kind provision for real property is quite broad, and includes land, rental, investment, and business property. Any of these can be exchanged for the other. The rule also requires that the exchanger use a safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. to hold the proceeds while the exchange is in progress, spelling out what those safe harbors are. The only practical safe harbor for most exchanger is a qualified intermediary The Qualified Intermediary (also known as an Accommodator) should be a corporation that is in the full-time business of facilitating 1031 exchanges. The role of a QI is similar to, but not identical to, the role of an escrow company. . He/she acts to facilitate the deferred exchange by entering into an agreement to exchange the properties, for a fee. The 1031 exchange rules also have two time limitations. The first is the period of time available for identifying the replacement property. It begins on the date of the closing of the exchange property and ends 45 days later. The second time requirement is the period in which the replacement property must be received by the exchanger. It starts on the date of closing of the exchange property and ends on the date that the tax return of the taxpayer is due, including extensions, or in 180 days, whiche ver is earlier. With interest rates at such attractive levels now is a good time to do this type of exchange. |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion