As a real estate professional, I want to assist clients with opportunities to build assets and maximize their real property investment potential. A 1031 tax deferred exchange offers investors a great opportunity to build wealth and save taxes. This could be the right time to consider a 1031 Exchange and start building your investment portfolio.
What is a 1031 Exchange?
"A tax deferred exchange is a transaction in which an owner of real property, holding the property for investment, sells the property and acquires another property without having to pay any taxes on the transaction. When properly executed, the tax consequence does not disappear, but is moved forward into the new property."
Benefits of a 1031 Exchange
- Defer and/or avoid paying taxes and conserve equity by keeping 100% of the equity working for you rather than giving a portion to the IRS
- Change your real estate investment from one geographic location to another
- Increase cash flow. Exchange one property with little to no cash flow for another one with better cash flow
- Improve investment appreciation by investing in a property that has greater appreciation potential than an existing property
- Consolidate or diversify investments
- Different types of exchanges:
- Simultaneous Exchange - two real estate investors exchange their properties with each other simultaneously
- Delayed Exchange - An investor has 180 days to close on a replace property once the sale of an old property takes place
- Construction/Improvement Exchange or Improvement Exchange allows an investor to sell an existing property and use that money to buy bare land for purpose of constructing a building or make improvements to an existing building
- Reverse Exchange occurs when it becomes necessary to acquire a replacement property before closing on the relinquished property
- Multi-Property and Multi-Party Exchange where an investor trades out of one property into several, or consolidates from smaller properties into one larger property. Two or more investors owning property together can trade into separate properties
Note:
The services of a Qualified Intermediary are required by the IRS code.
What is a Qualified Intermediary (QI)? A third part that helps facilitate a tax deferred exchange and performs specific services. Neither a QI or Realtor will provide legal or tax advice. You must consult with an attorney and/or tax advisor.
Call me for referral of a Qualified Intermediary and see how Mountain Investments of North Georgia can assist you with finding great investment properties.
Donna Yates, Georgia Realtor
Mountain Investments of North Georgia
706-633-0644 cell
donna@ellijay.com
www.move2northgeorgia.net
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Hi Donna, is it true that the 2nd property purchased has to be more than the 1st?
well it the2nd property is not then you pay the remains on the taxes is what I heard. I have clients who do not always pay the amount or more and it works for them.
Eugene: As I understand it, the 2nd property will be more than the 1st property anyway because the rule is that you have to spend whatever the replacement property made not what you paid for the replacement property. If you do not spend what the property sold for, then you pay taxes on the part you did not use to invest in a 2nd property. Thank you for your question.
Susan: You are right and thank you for responding.
Donna - Many thanks for the valuable information! I love your new photo.
Tom: You've been missed and I know you've been very busy. Thank you for the compliment and your comment. Glad to have you back.
Hi Donna, good information here. I have been to several exchange classes(good to stay on top of it).
Snow flurries here as I type. :) There will be no bread or milk around for miles lol!
Keith: I was in a class in our office yesterday which, of course, prompted the post. Snow on the ground in places here and so darn cold. I can just see the run on the stores now. I think we might see an increase in 1031 Exchanges with mountain properties. Must sharpen my investment skills.
Donna, great tutorial on 1031 tax deferred exchanges.
Gary: Thank you for your comment. I hope it gives a lot of potential investors a start.
It always amazes me when I come across a real estate investor who doesn't know about this. I've even had some decline to use an exchange, when they could have - primarily because they didn't understand. I think it's a great service for you to spell this out for folks in the North Georgia Mountains.
Margaret: Thank you for your comment. Yes, I agree, I would be surprised to for an investor not to know. Hopefully, this info will help those who do not know and start those would be buyers (who want to invest) on their way.
Yes, the like-kind replacement property acquired must be equal or greater than the relinquished property if you want to defer 100% of your capital gain and depreciation recapture taxes. However, you can exchange down in value and complete a partial 1031 exchange if you choose. Investors may choose to do a partial exchange in order to generate taxable gains that can be offset by losses carried forward.
William: Thank you for the information. I appreciate your comment.
Thank you for the detailed advice and replies. I have just moved from selling stricktly for a builder to the Investors only market. I have had a learning curve that I did not expect to take so long to feel confident. Ever since I came on to Active Rain I have been able to read lots of great blogs.
Great information. We've dealt with numerous 1031's with our investment properties we offered. Your information is great for the investment world
Mary: I think there are great opportunities now for investors and I was surprised to learn that there are lots of people who do not know they may be able to use their IRA to buy real estate.
Joe: Thank you for your comment.