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DEFER TAXES WITH "REVERSE" 1031/STARKER EXCHANGES ON BLACK HILLS INVESMENT PROPERTY

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The 1031/Starker Exchange is one way to avoid or defer capital gains on property. But the IRS also recognizes the "Reverse-1031." We believe the Reverse-1031 can become more attractive in this real estate market, particularly if you suspect the valuation outlook for your next property is rosier than your current property.


The more familiar ("regular") Delayed-1031 exchange involves selling your current investment now, then replacing it within 180 days with like-kind property(s). If all the criteria are met the IRS recognizes this sale as a non-taxable capital gain (for now). The IRS Publication 544 gives more details. The Internal Revenue Code itself provides more guidance (see Section 1.1031, the identifier from which the policy gets its name).

In a Reverse-1031/Starker Exchange, Internal Revenue Procedure 2000-37, you don't have to wait until you sell your current property before finding the replacement property. But when you find the replacement property you'll need to involve an "accomodation titleholder" to take possession until you sell your current property. (You cannot own both properties simultaneously.)

This seems to be a very handy way to handle a situation where you suspect you've already found the next, replacement property and you're concerned about it's purchase price escalating faster than your presently held property while you try to sell the present property.


And then, there's the risk that you'll have difficulty selling the current property, in which case the IRS plays arson on your 180-day burning platform.

Posted by Lee Alley, www.BHhomes.INFO, Rapid City, Black Hills, SD at 10:25 AM  

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Comments (1)

Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

That is the case for many people. . the 180 days is sometimes not enough time in todays market.

Oct 29, 2009 10:24 PM