Transfer Real Estate and Defer Tax
Transfer Real Estate and Defer Tax!
Many of us have been there. If you sell appreciated property, your unrealized gain can become a realized gain, and create a potential tax liability. But, if you exchange your property for another like property, you may be able to continue to defer the taxable gain!
A 1031 exchange is a swap of one business or investment asset for another. Capital gains on the sale of this property are deferred or postponed as long as the IRS rules are meticulously followed. 1031 exchanges typically involve real estate, but can be used for other investment properties like businesses.
It involves a simple swap of one property for another between two people.
Since it’s unlikely that you and another person will have the exact properties you want to swap, the vast majority of exchanges are delayed, three party, or Starker exchanges. In a delayed exchange, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you.
There are two key timing rules you must observe in a delayed exchange. The first is that you can’t receive the cash, and within 45 days of sale, you must then designate a replacement property. The second is that you must close on the new property within 180 days of the sale of the old one. These two time periods must be concurrent.
There can be other considerations as well. These exchanges can become complex and experts should always be consulted. This is no task for a "do it yourself" investor.
If you’re doing a 1031 exchange, you may need to buy replacement property before closing on a relinquished property, either because the relinquished property has fallen through, or because the investor has found a better replacement property. In these cases, the investor can save the exchange by doing a “reverse” 1031 exchange.
In a reverse exchange, the investor is able to close on the acquisition of the replacement property before the relinquished property is sold to a third-party buyer. This is done by having a limited liability company take title to either the replacement property or the relinquished property.
If this sounds complicated, that’s because it often is! A little thought and planning now can save you time, headaches, and money down the road. If you want to learn more about 1031 exchanges, we do offer a no-obligation consultation. You can schedule yours today by calling us at 216.521.1711, emailing us at Quarterback@Lineweaver.net, or by clicking here.
Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Lineweaver Wealth Advisors, LLC. Lineweaver Wealth Advisors, LLC is not affiliated with Triad Advisors. Information contained herein is not tax advice and should not be considered as such. Each individual’s tax situation is unique and different. For advice related to your specific tax situation, please contact your personal tax professional. Not FDIC insured. Not bank guaranteed. May lose value.
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