1031 Exchange Real Estate Agent
What is Section 1031?
Here's what you need to know
Learn the methods used by savvy real estate investors to defer paying capital gains taxes, and build wealth. We’re talking about the IRS code Section 1031. Get in touch with us for more details on how Section 1031 can work for your investments.
Short answer: 1031 exchange, also called a like-kind exchange, is a swap of one investment property for another. In effect, you are allowed to defer paying taxes because you’re not cashing out on the sale. Instead, you are putting the proceeds of the sale into another similar investment property. Lets get into the details for more clarity.
1031 Exchange Consultation
Basics of 1031 Exchange
Exchanges & Timing Rules
45-Day Rule
Within 45 days of selling your original property, you must settle on as many as three properties that can be potential replacements, as long as you eventually close on one. However, those three properties together cannot exceed 200% of the original sale price. This is known as the 200% rule.
The desired properties must be listed in writing, and given to an intermediary that will actually perform the transaction. This third party, who should be a 1031 exchange experienced real estate agent, will be the one that both holds on to the gains of the original sale, and uses it to make the exchange purchase.
180-Day Rule
The purchase of one of those aforementioned three properties must be closed within 180 days of the sale of the original property. The 45-day rule and the 180-day rule both start on the day of sale, and run concurrently. They can both be handled at the same time if you’re lucky enough to find an appropriate property, or already had your eyes on one, but neither limit may be exceeded.
1031 Exchange Real Estate as a Vacation Home
1031 real estate exchanges used to often be used by savvy homeowners to swap vacation homes, or secondary residences. That is still possible, but like with the rules of a primary residence, it will take much longer. Again, the property will have to be available to renters for a set period of time, and the owners of the property can not use it for longer than 10% of the time it is rented. This will categorize the property as being for business purposes, allowing it to be used in a 1031 real estate exchange. We strongly advise you consult with a qualified 1031 exchange real estate agent if you are thinking of taking advantage of this loophole, as the repercussions of doing it wrong can be financially hefty.
Tax Implications of 1031 Real Estate Exchange
As long as the 45- and 180- day rules are followed, no capital gains tax will be levied on the sale of the original property. This is beneficial as it allows the seller to have more liquid capital available to invest in the replacement property.
If there is a discrepancy between the original sale price and the exchange property price, known as a “boot,” the boot will be taxed. For example, if you sell a property for $100,000 and buy another property at $90,000, that $10,000 difference is considered a capital gain, and will be taxed.
There is no limit to how many times a 1031 exchange can occur, as long as the timing rules and “like-for-like” parameters are respected. That means until a property is sold for cash, in a lifetime a savvy investor can legally keep flipping properties without paying capital gains taxes. A qualified 1031 exchange real estate agent can walk you through the rules to follow to accomplish this.
1031 Exchange Real Estate as a Primary Residence
A 1031 exchange is solely meant to facilitate the exchanging of investment or business real estate. A primary residence usually does not qualify for an exchange because it is not used in trade or business or investment. This doesn’t mean you can’t eventually move in to your 1031 exchange property, but timing rules must be noted. Consult a qualified 1031 exchange real estate agent to make sure you don’t end up accidentally nullifying your 1031 exchange, thus owing capital gains taxes on your original sale.
If you turn what will eventually become your primary residence into rental property for a set amount of time, this converts the property into a business holding. When it is in that state for over two years, it can then be used in a 1031 real estate exchange. The timing of when the property became a rental business is extremely important, and the residence may not be sold for five years without the seller invalidating their 1031 exchange.
Recent 1031 Exchange Projects
9329 Sunland Blvd, Sunland, CA 91352
1031 Exchange Building Notes:
6,801 SF Auto Repair Shop and Body Shop with spray booth and high tech equipment. 2000 sq. ft. of building is a mezzanine which is used as part storage and office. Features Building Signage and Street Signage and East Freeway Access.
- Type: 2 Star Industrial Service
- Location: Suburban
- SF BRA: 8,800
- SF Lot: 16,379
- Built: 1999
- Multiple Tenancy
- Zoning: LAM2