by Mike Colpitts 1031 Tax Deferred Exchanges
The 1031 tax deferred exchange may be the best tax advantage the Real Estate Investor has ever been given by the U.S. Government. It is a widely used avenue to defer taxes in the real estate market. It gives real estate investors a rare opportunity to defer capital gains taxes on profits made in real estate.
The 1031 has many advantages for real estate investors. It allows investors to sell an investment property and buy another property without paying any immediate capital gains taxes. The little understood and often misunderstood IRS 1031 tax deferred Internal Revenue Service code is not for use on principal residences or second homes, but only for investment properties.
The 1031 tax deferred exchanges are also commonly called “the like kind exchange” by tax professionals and Exchange company handlers primarily because the property that sellers must re-purchase must be equal to or greater in value over the property they have sold.
Exchanges in Fort Myers real estate and elsewhere are sometimes cumbersome and may involve up to 3 properties. Only experienced real estate professionals, tax advisors well practiced in this specialized field and exchange company professionals who handle many of these transactions should be used to conduct exchanges. Tax accountants heavily experienced in this field will inform you that only about 25% of all attempted exchanges ever close escrow. The majority of 75% fail due to inexperience or the inability of the sellers to meet important deadlines set for the exchange.
An exchangor or the seller of a property must submit a list to a qualified
intermediary identifying the replacement property within 45 days of the closed sale of their investment property. Up to 3 properties may be named to acquire. The purchaser, who is then recognized legally as the exchangor must close the sale on the replacement property within 180 days following the sale of the relinquished property or the due date of the seller’s tax return, which ever occurs first.
Handling 1031 tax deferred exchanges have become a specialty of the Mike Colpitts Real Estate Team. Mike is a recognized expert on 1031 exchanges. There are many intricacies involved. To defer taxes the transactions must be structured to avoid receipt of any funds, including personal notes, cash, and mortgage relief.
A qualified intermediary must be used to handle the funds, which cannot be touched by the principals at any time or they risk being taxed on the entire profit they have made from their real estate. To get more information on 1031 tax deferred exchanges just contact us.