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I will assist in facilitating a 1031 Tax Deferred Exchange so you can
take all your profits (tax deferred) into a new piece of real estate. We
will also assist you in finding and identifying your new property per the
IRS guidelines of within 45 days of settlement of your first property.
No. 1031 Exchanges are not really exchanges in the context of a two party barter. Instead, you are going to sell your property to someone totally unrelated to the person from whom you are acquiring your replacement property. The only real difference between a 1031 Exchange and a typical sale and purchase transaction is the deferral of capital gains.
Initially, your 1031 Exchange is reported to the IRS on Form 1099S which should indicate that you are effecting a 1031 Exchange and will receive property as consideration for the sale of your relinquished property. IRS Form 8824 must be completed as part of your annual federal return. In addition to determining your realized gain, recognized gain and your new basis, this form will ask the date you sold your relinquished property, identified and acquired your replacement property. Form 8824 is actually a supporting form for IRS Form 4797.
No, you do not, however you will be taxed on the amount you don't spend. Unused proceeds are known as "boot" and are taxed on their face value at the capital gains tax rate.
You can receive unused proceeds at any time after you acquired each one of the properties identified in your 45-day identification. If you do not acquire all of the properties identified in the 45 day identification, then the unused proceeds cannot be released until the earlier of the due date of your tax return, including extensions, or 180 days after the closing date of the sale of the relinquished (exchange) property.
No, as long as you have not settled on the property you are selling, a 1031 Exchange can still be completed. However, once the closing occurs, it is too late to take advantage of Section 1031.
Yes, you can combine multiple relinquished properties into one replacement property. The rule here is that the first relinquished property to close starts the clock running for all the rest. All the relinquished properties to be combined must be closed within 45 days of the first one to close. The same replacement property is then identified for each relinquished property to be combined.
There are no hard rules here. What the IRS requires is that you show intent to use the replacement property as a rental. Most of the tax attorneys that we talk to feel that if the property shows up as a rental on two or more consecutive tax returns you will have shown intent.
The capital gains tax is calculated the same as in any other sale, assuming that you have not converted it to residential use, and that you are not going to do another 1031 exchange.
The trick here is to be able to establish the basis on the new property at the time of sale. The basis on the new property is the sum of the basis transferred from the old property, plus the difference between the sale price of the old relinquished property and the new replacement property, minus the depreciation on the new replacement property.
The classification of properties exchanged determines if the property qualifies for Section 1031 treatment.
The last two qualify for Section 1031 tax deferral, the first two do not. Both the property received and the property sold must be of "Like Kind". It is your use of the property that determines its classification. What the other party does with the property does not affect your tax status.
Your interest in a partnership cannot be traded for an interest in another partnership.
Exception: The partnership as an entity can exchange real estate it owns for other like-kind real estate.
There are no income tax consequences in entering into financial transactions between spouses. In addition, most transfers incident to a divorce are tax free. However, transactions with a former spouse are normally subject to tax unless they qualify for nonrecognition under the provisions of Section 1031.
A lessee's interest in a lease with a term of 30 years or longer in real property is considered like-kind to other real property. In addition, property which is subject to a lease can be, even if the lease is for a term of 30 years or longer, the subject of a tax free exchange. However the receipt of prepaid lease payments in an exchange for a 30-year or longer lease is taxed as ordinary income and will not qualify for tax-free exchange treatment.
The personal property assets of one business can be exchanged for like-kind assets of another business and will be held as a like-kind exchange under Section 1031. The real property is treated the same as any other exchange. The like-kind requirements for personal property are much more stringent than for real property (e.g., a truck cannot be exchanged for a car, nor can a barge be exchanged for a cargo ship).
This type of property does not qualify if it is used solely for personal use. It may qualify if rented, and must pass a use test each year.
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