Skilled Guidance In 1031 Exchanges
In a nutshell, a 1031 exchange enables an investor to sell a property for the purposes of investing the proceeds in a new property, while allowing for a deferral of all capital gain taxes stemming from the sale. These types of exchanges are complex and it is essential to seek help from a skilled lawyer who can help guide you through this process. At Blackacre Law LLC, our attorneys have a history of helping real estate investors successfully negotiate a 1031 exchange. We are prepared to put our experience to work for you.
Things That Real Estate Investors Should Know
Deferring capital gains taxes through a 1031 exchange can happen an unlimited number of times. In theory, one can eliminate this tax entirely by continuing to roll over their gains. However, there are certain requirements that must be met in order to remain in the good graces, such as they are, of the IRS, including:
Like-kind property: The property to be sold and the property that is to be bought must be of “like-kind.” While this may seem self-explanatory, the term is often misunderstood. “Like-kind” refers to how the property is to be used. In other words, both the old and new property must be held for investment or utilized in commercial trade or business. Holding a property solely for resale means is not enough to meet this definition.
45-day identification period: The new property must be identified within 45 days of the closing date of sale of the old property. These are calendar days, not business days. If more than three new properties are identified, there is a limit on the total value of all the properties in order to qualify for 1031 benefits.
180-day purchase period: The new property must be purchased and closed on within 180 days of the closing on the old property. This period runs concurrently with the 45-day identification period, which means if you wait until day 45 to identify the new property, you have only 135 days left to close on the new property.
Qualified intermediary: Sellers may not touch their proceeds between the sale of the old property and the purchase of the new property. An independent third party or intermediary must be used. This person cannot be a family member nor can they have had a business relationship with the seller within the past two years.
Mirror image title: The taxpayer listed on the title to the old property must be the same taxpayer who is listed on the new property. If an additional party needs to be added to the title of the new property, for loan qualification purposes, for example, other workarounds may be available.
Reinvestment amount must be equal or greater: The new property has to be of greater or equal value to the old property, and all cash profits must be reinvested into the new property. However, closing expenses and sales commissions may be deducted.
Contact Us For Help With All Of Your Real Estate Law Needs
We can help with 1031 exchanges and other real estate law matters. To schedule a consultation, call us at 864-326-3507 or submit our online contact form. From our offices in Greenville, we represent clients throughout South Carolina.