What is a tax free exchange?

By
Real Estate Agent with Century 21 Elite Performance
What is a tax free or 1031 Exchange?

A 1031 exchange, also known as a Starker Exchange, enables you to sell property and invest the proceeds into another without having to pay tax on the gain--you defer it.  And you can keep legally doing this over and over again.

Reasons why people exchange investment real estate:
  • Defer taxes that would otherwise be paid in a sale.
  • Acquire property using the equity of a previously owned property as the down payment.
  • Increase basis and possibly qualify for more depreciation.
  • Create a more favorable financing situation.
  • Diversify a portfolio.
  • Consolidate a portfolio.
  • Move investments to another geographic area.
  • Relief from property management.

The steps in the process are:

1.  "Sell" your property.
2.  Demonstrate your intent to do an exchange into like-kind property.
3.  Proceeds go to a "qualified intermediary."
4.  Identify your replacement property within 45 days of the sale of the old property.
5.  Purchase the replacement property within 180 days of the sale of the old
     property.

Three key points:

1.  You may only exchange into like-kind property i.e. income producing real
     property for income producing real property.
2.  It is critical to monitor dates and deadlines to ensure you meet the test with the
     IRS.
3.  Have professional assistance including an accountant, tax attorney, REALTOR®, and a
     "qualified intermediary."

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Tags:
tax
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property management
financing
sell
down payment
depreciation
1031
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accountant
tax free exchange
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Rainmaker
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Heather Fitzgerald
REALTY WORLD-Harbert Company, Inc. - Greenwood, IN
REALTOR Greenwood Indiana Real Estate
There are some great flyers on asset preservation that agents can modify for their marketing purposes.
Jan 30, 2008 07:32 AM #1
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Jon Higgins

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