At SIFF we believe our greatest value is to act as an objective third party advisor between our investors and real estate partners (realtors, mortgage brokers, and property managers) to ensure our client’s investment returns are maximized. By changing the playing field to create oversight and accountability, you receive the best service, pricing, and investment options.
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SIFF can help you with a 1031 (tax differed exchange) whether you own a single family house or large multi-unit rental property. Please feel free to Download our 1031 Exchange PDF by clicking here.
We also just posted a great article on the most common mistakes investors make when using 1031 Exchanges – To read more Click Here
1031 Exchange Definition
A 1031 exchange, otherwise known as a tax deferred exchange is a simple strategy and method for selling one property, that’s qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame.
So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are NOT taxable. Utilizing a 1031 exchange can provide tremendous leverage and increased income all while having no tax burden.
The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a “1031 exchange” is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between “exchanging” and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment.
How can SIFF help you
Before you decide to purchase, sell or exchange any of your properties you need to know how well they are performing and how this decision will affect your personal investment goals.
SIFF will analyze your portfolio to see how well your properties may or may not be performing. This gives you, the investor, valuable insight and the information necessary to choose the appropriate action that will ultimately increase your investment returns.
If we determine that a 1031 exchange will increase your income, lower your expenses and provide you a better investment, SIFF will coordinate the entire transaction to ensure you receive the best service, pricing and investment options.
To receive a complimentary consultation today – Click Here
The 1031 Exchange Rule
A property transaction can only qualify for a deferred tax exchange if it follows the 1031 exchange rule laid down in the US tax code and the treasury regulations.
The foundation of 1031 exchange rule by the IRS is that the properties involved in the transaction must be “Like Kind” and Both properties must be held for a productive purpose in business or trade, as an investment.
The 1031 exchange rule also lays down a guideline for the proceeds of the sale. The proceeds from the sale must go through the hands of a “qualified intermediary” (QI) and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. The entire cash or monetary proceeds from the original sale has to be reinvested towards acquiring the new real estate property. Any cash proceeds retained from the sale are taxable.
The second fundamental rule is that the 1031 exchange requires that the replacement property must be subject to an equal or greater level of debt than the property sold or as a result the buyer will be forced to pay the tax on the amount of decrease. If not he/she will have to put in additional cash to offset the low debt amount on the newly acquired property.
The Identification Period: This is the crucial period during which the party selling a property must identify other replacement properties that he proposes or wishes to buy. It is not uncommon to select more than one property. This period is scheduled as exactly 45 days from the day of selling the relinquished property. This 45 days timeline must be followed under any and all circumstances and is not extendable in any way, even if the 45th day falls on a Saturday, Sunday or legal US holiday.
The Exchange Period: This is the period within which a person who has sold the relinquished property must receive the replacement property. It is referred to as the Exchange Period under 1031 exchange (IRS) rule. This period ends at exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person’s tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. Now according to the 1031 exchange (IRS) rule, the 180 day timeline has to be adhered to under all circumstances and is not extendable in any situation, even if the 180th day falls on a Saturday, Sunday or legal (US) holiday.
Listen to this great podcast that explains 1031 Exchanges and how to use them effectively by clicking here – 1031 Exchange Podcast episode 2.
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