If you had the chance, wouldn’t you prefer to defer paying your taxes? They’re costly, frustrating, and just so, well, taxing! That’s why 1031 exchanges are so convenient when selling certain kinds of real estate.
When you sell business or investment real estate, you’re required to pay capital gains tax on the sale. Unless you set up a 1031 exchange, that is. 1031 exchanges allow you to postpone paying those taxes as long as you purchase like-kind property with the proceeds. The idea is that because the seller is reinvesting the sale proceeds into another property, there hasn’t been an economic gain worth taxing. While the form (the actual property) of the investment has changed, the financial investment has remained the same. In effect, the seller is leveraging their potential tax liability into new real estate.
With a 1031 exchange, you won’t have to pay taxes on your investment until further on down the line, when you sell the replacement property. If the taxpayer never sells the property, then their beneficiaries will have virtually no capital gains tax due to the basis step-up rule.
There are numerous benefits to 1031 exchanges. For one thing, a 1031 exchange is one of the only options available for sellers hoping to postpone taxes when selling an investment. So if you’re hoping to defer taxes on a property sale, you really ought to consider a 1031 exchange. For another, in deferring the taxes, you’ll have more money to spend on another investment property. Plus, a 1031 exchange allows you to reallocate your investments without paying any taxes on the gains you make. And finally, any gain from depreciation recapture is postponed or possibly eliminated at your death.
If you’re planning to try a tax-deferred exchange, be sure not to transfer the property’s title, benefits, or burdens until you’ve set up the exchange. After the sale of your property, you have only 45 days to identify your replacement property (no extensions allowed) and 180 days to close on the replacement property. So if you wait the full 45 days to identify the new property, you’ll only have 135 days to close! Act fast because these time limits are strict.
For more details about who and what qualifies for 1031 exchanges, contact a lawyer, a tax advisor, or a qualified intermediary who is experienced in these transactions.
To learn more click Midwest1031x.com
In 1994, Clancy formed Midwest 1031 Exchange Company, Inc. Midwest 1031 is a full service Qualified Intermediary company designed to facilitate a client completing a 1031 Tax-Deferred Exchange. Essentially, the tax code has established a process whereby a taxpayer selling qualified real estate can defer/avoid the capital gains tax on that transaction if they reinvest in “like-kind” real estate within certain time frames.
When Midwest 1031 is serving as the Qualified Intermediary for a taxpayer, Midwest 1031 is NOT their legal counsel. However, many times clients contact the law firm and we engage them as legal counsel as they make their way through the 1031 rules and regulations. So, either as a taxpayer’s Qualified Intermediary through Midwest 1031 Exchange Company, Inc., or as their legal counsel through the law firm, we are uniquely qualified to assist taxpayers leveraging the equity in their property so they can sell when they want to without the government taxing the situation.
Parks & Jones, Attorneys at Law is a full service Estate Planning and Elder Law practice that provides comprehensive planning in the areas of wills, trusts, powers of attorney, probate and trust administration, probate avoidance planning, revocable trusts, Elder Law, long-term care planning, nursing home care, wealth protection, Veterans Benefits, special needs trusts, business law and business succession, charitable planning, and estate tax planning. Parks & Jones, Attorneys at Law serves clients and their families all throughout Springfield, MO and the surrounding areas of Branson and the Ozarks.
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