I was recently asked to write a short article for a local publication about the basics of Section 1031 exchanges. Over the time I've been here at activerain, my blog topics have covered a wide range of exchange-related topics, including the basics. However, it has been a long time since I've addressed that basic information. Writing the article caused me to realize that was the case, so this is an attempt to remedy that situation. With that in mind, here is the first of three blog entries having to do with the four basic hurdles for the standard 1031 exchange:
What if there were a way for a real estate investor or business owner to sell assets and reinvest the profits 
with absolutely no income tax liability whatsoever? A Section 1031 Exchange allows an investor or business owner to do just that. Believe it or not, this option has existed within the US tax code for well over 80 years,
Why exchange? There are many benefits, but the overriding one is the tax savings that allow more of your equity to be used in the new property, Example: You sell investment property and realize net proceeds of $100,000. Without an exchange, $30,000 of your proceeds could easily go to taxes, leaving only $70,000 for reinvestment. By employing an exchange, the entire $100,000 can be reinvested with no tax liability. Before you enter into an exchange, it is highly recommended that you consult with your tax or financial advisor to ensure that a 1031 exchange is right for you.
Between 1984 and 1991, many of the modern-day rules and regulations were written into the code. Let's examine the rules that apply to the common exchange.
#1 - The properties must quality. In IRS terms, they must be "like-kind." The easiest way to determine whether two pieces of real estate are like kind is to ask these two questions:
"Did I hold the property I am selling as an investment or use it in my business?" and "Do I intend to hold the property I will buy as an investment or use it in my business?" If you can answer, "Yes," to both of those questions, the properties qualify and they are like-kind. Yes, raw land can be exchanged for an apartment building. Rental houses can be exchanged for farmland. The possibilities are endless!
(Article continued in Part 2.)
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Please see the next two blogs for additional information on Section 1031 basics.
Please consider IOWA EQUITY EXCHANGE as your source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.
Ken Tharp
Ken Tharp, President
800-805-1031 toll free
Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.
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Copyright © 2009 By Ken Tharp, All Rights Reserved. * Section 1031 Exchanges - The Basics (Article #1) * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.
