Money, Cash & Finance

There are a lot of investors that end up making the mistake of selling their business or investment property but have to pay thousands of dollars in capital gains taxes to the IRS. What they may not know that there are tax laws that provide them the ability to defer all of the capital gains taxes on the sale of property which has been held as a trade or business – thereby retaining their gain.

The taxes you would normally need to pay on the sale of an investment property can be deferred (if not eliminated entirely) with this law. The money that is made on the sale of your business or investment property, must also be used only to purchase another “like-kind. Using a 1031 exchange is like a carpenter using a hammer to drive a nail, it gives him so much more leverage – and likewise the money you can save can be leveraged to purchase even more property to compound your wealth.

The 1031 Exchange provision has saved investors millions and millions of dollars, and it is well worth your time to explore the benefits of it for yourself. In order to reap those rewards, there are some specific procedures you need to follow.

First, it’s important for you to choose a well respected and professional qualified intermediary also known as a “Q.I.”. Qualified Intermediaries deal exclusively with the facilitation of tax exchanges, they are the experts. The Qualified Intermediary enters into a contract to change the transaction from a “Sale” to an “Exchange” so that the Q.I. transfers your old  property that you are giving up to the buyer, takes the proceeds, and then uses the proceeds in order to transfer the replacement property to you.

In order to qualify for this exchange you must abide by the following rules:

1. Firstly, the investment property that you are replacing must have been used for investment purposes or use in a trade or business and must be “like-kind” (i.e. real estate in the United States for real estate in the U.S.).

2. Second, you must find a replacement property if you haven’t already, clearly identify it in writing to your Q.I. it within 45 days. It is necessary to close on the sale on the replacement property within one 180 days.

3. To defer your capital gains taxes, all of the proceeds from the sale of the first property must be used to purchase your new replacement property.

You will be best positioned to make a 1031 tax exchange if you follow these rules. The procedure is simple enough but even if the path seems a little complicated from time to time, it will be well worth it with the money you will save. Do something good for yourself by retaining your capital gains with a 1031 Tax Exchange!