What is a 1031 Exchange Plan?

Also referred to as 1031 Tax Free Exchanges, and Safe Harbor Delayed Exchange    

The sale of property held for productive use in trade or business or held for investment will generally result in a taxable event. However, if the sale is structured as a like kind exchange prior to the sale, and is linked through appropriate documentation and procedures to the acquisition of a qualified replacement property, the seller will have a Safe Harbor Tax Deferred Exchange.

So What Are The Elements of a 1031 Exchange? 

1) Saving Capital Gains Taxes - the basis reason for exchanging your investment real estate for another piece of real estate is to defer taxes (capital gains are 15% on sales after May 5, 2003).

2) Sale of Investment Property - through an independent third party is the first step in structuring a Safe Harbor Delayed Exchange. The third party has certain responsibilities governing the roles of the parties. This event starts the clock ticking on the taxpayer’s exchange. The third party will report the deadline dates for identifying and closing on the next property and hold all monies.

3) Like Kind -like kind property must be exchanged. There are some broad interpretations here, but for real estate investment property it must be trades for any other real property held for investment. 

Some Examples:

A residential property for a residential property
Vacant land for a duplex
Motel for an apartment building
Industrial building for timberland 

So What Are The Important Rules To Remember?

The Intermediary Third Party - the sale of the investment property must be assignable to the qualified third party. The third party will receive and hold the funds in escrow for the transaction(s). 

Time Frames - When the relinquished property is closed, the seller has: 

45 days to identify the replacement property (properties).
180 days to close the sale (sales) 

Is There More To Know? 

Yes! We always recommend an attorney and a specialist intermediary to coordinate the transaction. It is imperative to use Brokers who understand the process.

Did you know you can buy real estate with your retirement funds?

Your IRA, Roth IRA, 401K, SEP, etc; all of these are qualified programs. Even if you are currently withdrawing funds, your balance or partial balances can be invested in Real Estate.

10 Great Reasons For Investing

1.    Real Estate outperforms the stock market.

2.    You control your money, not a third party.

3.    You can study the property and decide on it.

4.    You can earn larger profits in your retirement account.

5.    There are no capital gains on the sales of real estate.

6.    Your fund can realize 10% to 30% gains yearly.

7.    Your money manager is lucky to get you 7%.

8.    So you can retire comfortably.

9.    So you can help your child develop a better portfolio.

10.  So you can help your children and grand children fund their education.