1031 Exchange
Preserve Your Wealth with a Tax-Deferred Exchange
A tax-deferred exchange is a powerful way to keep more of your money by reinvesting in similar types of properties, known as “like-kind” assets. When you sell an investment property, you might have to pay federal capital gains taxes and, in some states, state taxes too. However, by using a tax-deferred exchange under Section 1031 of the Internal Revenue Code, you can defer paying those taxes.
This means you can sell your investment property and buy a new one, all while delaying the payment of capital gains taxes. Most states with a capital gains tax offer this same benefit. In short, a tax-deferred exchange lets you reinvest money that would otherwise go to the government as taxes.
At Taxulo Realty, we are experts in this field, helping investors with their tax-deferred exchanges. We have the experience and reputation to handle your exchange safely and efficiently. We manage the entire process for you: we handle the sale of your property, hold the proceeds, and then use that money to buy the replacement property on your behalf.
Whether your exchange is simple or complex, our experts are here to ensure everything goes smoothly. We work closely with you and your tax advisors to make the process as easy as possible, so you can focus on growing your investments.
Types of 1031 Exchanges
1. Delayed Exchange:
The Delayed Exchange is the most widely used form of a 1031 exchange. In this process, you sell your current property first and then have up to 180 days to purchase a “like-kind” replacement property. The key is that you must identify the new property within 45 days after the sale of your original property. This exchange allows you to defer paying capital gains taxes by reinvesting the proceeds from the sale into a new property.
2. Reverse and Improvement Exchange:
A Reverse Exchange is when you purchase the replacement property before selling your current one. This is useful when you find a desirable property before selling your existing one. In this case, the new property is held by an intermediary until your original property is sold.
An Improvement Exchange (also known as a Build-to-Suit Exchange) allows you to use the proceeds from the sale to make improvements on the replacement property. This exchange type lets you customize the new property to better fit your needs while still deferring capital gains taxes.
Both Reverse and Improvement Exchanges are more complex than Delayed Exchanges but offer additional flexibility in managing your investments.
General Requirements for a Tax-Deferred Exchange
Identification Period:
You must identify the replacement property within 45 days of transferring the first property you’re relinquishing.
Exchange Period:
You need to complete the purchase of your replacement property within the earlier of these two deadlines:
1. 180 days after the transfer of your first property, or
2. The due date of your federal income tax return for the year the first property was transferred, including any extensions.
To fully defer taxes, the value and equity of your replacement property must be equal to or greater than that of your relinquished property. Additionally, the debt on the replacement property must be equal to or greater than the debt on the relinquished property, unless you cover the difference with cash.
Replacement Property Identification Rules:
You can identify replacement properties using one of the following rules:
* 3-Property Rule: Identify up to three properties, regardless of their total value.
* 200 Percent Rule: Identify any number of properties, as long as their total fair market value doesn’t exceed twice the value of the relinquished property.
* 95 Percent Rule: Identify any number of properties, regardless of their combined value, as long as you acquire at least 95 percent of the total value of the properties you identify.
With Taxulo Realty, you have the flexibility to choose the best option for your needs—along with all the benefits that come with it.
At Taxulo Realty, we make starting a 1031 exchange straightforward and hassle-free. Let us guide you through the simple steps to reinvest your capital gains and maximize your investment potential.
Getting started with a 1031 exchange is easier than you think. Let’s discuss how we can help you reinvest your gains and take full advantage of this powerful financial tool.
