New Orleans Real Estate - 1031 Exchange - Tax-Deferred
Have you ever heard of a 1031 Tax-Deferred Exchange? I would bet that you have...to a certain extent. This New Orleans Real Estate blog post is intended to give a very general and basic look at 1031 exchanges. As always, please consult with your tax professional or attorney for more specifics.
So first of all, what is a 1031 Exchange? According to 1031.org, a 1031 exchange is "a method by which a property owner trades one or more relinquished properties for one or more replacement properties of "like-kind", while deferring the payment of federal income taxes and some state taxes on the transaction." Basically, it seems like you sell a property and then buy another immediately in order to defer paying taxes on the proceeds from the sale of the first property.
What are the requirements for a valid exchange?
- Qualifying Property - Certain types of property are specifically excluded from Section 1031 treatment: property held primarily for sale; inventories; stocks, bonds or notes; other securities or evidences of indebtedness; interests in a partnership; certificates of trusts or beneficial interest; and chooses in action. In general, if property is not specifically excluded, it can qualify for tax-deferred treatment.
- Proper Purpose - Both the relinquished property and replacement property must be held for productive use in a trade or business or for investment. Property acquired for immediate resale will not qualify. The taxpayer's personal residence will not qualify.
- Like Kind - Replacement property acquired in an exchange must be "like-kind" to the property being relinquished. All qualifying real property located in the United States is like-kind. Personal property that is relinquished must be either like-kind or like-class to the personal property which is acquired. Property located outside the United States is not like-kind to property located in the United States.
- Exchange Requirement - The relinquished property must be exchanged for other property, rather than sold for cash and using the proceeds to buy the replacement property. Most deferred exchanges are facilitated by Qualified Intermediaries, who assist the taxpayer in meeting the requirements of Section 1031.
You may also be interested in: New Orleans Real Estate – The Definitive Blog __________________________________________________________________________
This New Orleans real estate blog post was provided by Darryl Glade, Realtor with RE/MAX N.O. Properties. Darryl can be reached at darrylglade@remax.net or by phone at 504.451.8960. Darryl’s real estate office is conveniently located in Uptown New Orleans at 8001 Maple Street. Darryl works throughout the Greater New Orleans area including Uptown, Lakeview, Broadmoor, Mid-City, Metairie, Kenner, Westbank, French Quarter, and the Warehouse District.
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