1031 EXCHANGES HOW SAVVY INVESTORS DEFER CAPITAL GAINS TAXES
GRADE AND QUALITY The IRS defines like-kind properties, which are exchanged in 1031 exchanges, as being of “the same nature or character, even if they differ in grade or quality.” This means that a relinquished property does not have to have the same, or even similar, quality or value to the replacement property. You can also exchange non-like-kind property, such as cash and liabilities, during a 1031 exchange, but unlike like-kind property, it will still be subject to capital gains tax. TYPES OF EXCHANGES There are four forms of 1031 exchanges, and each differs slightly in their execution and timing.
•
Deferred exchanges give the party relinquishing property some additional time to identify a replacement property to later be used in the exchange. According to IRC § 1031, a replacement property must be identified within 45 days, and the exchange must be completed within 180 days. Reverse exchanges involve receiving replacement properties through an Exchange Accommodation Titleholder (EAT), which can be held for 180 days before being transferred to a third party. Finally, improvement exchanges involve an investor having adequate time to finish improvements to a replacement property before the exchange can be completed. As with deferred and reverse exchanges, the parties have 180 days to complete any improvements and subsequently exchange properties.
•
For over a century, savvy real estate investors have been utilizing 1031 exchanges, which get their name from Internal Revenue Code (IRC) § 1031 and are sometimes known as “like- kind” exchanges, to help defer capital gains taxes during property sales. In 1031 exchanges, like-kind properties are exchanged for business, investment, or a future exchange. You won’t owe capital gains taxes — which can be costly — until the property is ultimately sold. There are four forms of 1031 exchange, and there are important details about them that you should know to get the most out of this valuable tool.
•
•
Simultaneous exchanges, the simplest exchange form, involve swapping one like- kind property for another. As the name suggests, simultaneous exchanges happen immediately upon sale.
Have a Laugh!
Delicious Chickpea Curry
Packed with protein and fiber, this chickpea curry is a flavorful, plant-based option perfect for any diet.
• 2 tbsp olive oil • 1 onion, diced Ingredients
• 1 15-oz can chickpeas, drained and rinsed • 1 14-oz can diced tomatoes • 1 cup low-sodium vegetable broth • Salt and pepper, to taste
• 2 garlic cloves, minced • 2 tbsp curry powder • 1 tsp ground cumin • 1 tsp ground turmeric
1. In a large pot over medium heat, add the olive oil. 2. Add the onion and garlic and cook until softened, about 5 minutes. 3. Add the curry powder, cumin, and turmeric and stir to combine. 4. Add the chickpeas, tomatoes, and vegetable broth and bring to a simmer. 5. Reduce the heat to low and simmer for 20 minutes, stirring occasionally. 6. Season with salt and pepper to taste. directions
1 3
Published by Newsletter Pro • www.newsletterpro.com
Made with FlippingBook Ebook Creator