Click on any of these links to learn more about 1031 Tax Exchanges.
1031 Exchange Overview | Selling Your Home Tax-Free | Qualifying for Tax Deferral
A 1031 Exchange, named after the IRS code, allows you to sell investment real estate and replace it with other investment real estate without creating a taxable event.
Many investors don't realize that taxation on the sale of investment property does not have the same tax advantages enjoyed when selling their principal residence. Profits are often substantially affected by tax consequences. With a 1031 Exchange, you can defer payment of the tax normally due on the sale of your property that has a taxable gain.
There are many benefits to performing an exchange instead of a sale and new purchase. It can make more funds available for the new purchase by deferring any tax payments that would have been due. It can also help you with your investment income. By allowing you to sell investment properties that aren't giving enough return and use the non-taxed gain to purchase another property that produces more cash flow, you can greatly increase your income.
To qualify for a 1031 Exchange, you must trade real estate that is held for business or investment purposes for other like investment property. 1031 Exchanges can not be used in the sale of your primary residence or second home.
To qualify, you must use a Qualified Intermediary, who in turn buys the next property you have chosen. You are not required to exchange all of your cash from the sale of the first property into the purchase of the second. However, if you take proceeds from the first sale, each dollar taken is subject to capital gains tax. To avoid the tax, you must rollover the entire gain into the new property. You may also exchange one property for several others or vice versa. It does not have to be one for one.
For a copy of the 1031 Exchange Rules and Guidelines, give us a call at 800-735-8245 or email us:requests@joellennash.com. We recommend that you consult your personal accountant for specific advice. We also recommend visiting www.expert1031.com for more information.
1031 Exchange Overview | Selling Your Home Tax-Free | Qualifying for Tax Deferral
Can You Sell Your Vacation Home and Not Pay Tax?
By Gary Gorman, Managing Partner, The 1031 Exchange Experts, LLC
Can you sell your vacation home and not pay tax? Maybe. There are a couple of ways that you might do this. The first is to do a 1031 exchange. IRS Code Section 1031 will let you sell investment property and roll the gain into the purchase of other investment property. While there are a number of requirements that you have to meet to do this, the first big hurdle you have to face is whether or not your vacation home is considered investment property. There are a number of ways that you can do this, but if you have rented it from time to time or have offered it for rent you should have no problem making this work. Of course you will have to buy another investment property as a replacement.
If you don't want to buy another property, consider turning your vacation home into your primary residence for two years. After this two year period you could then sell the home and the first $500,000 ($250,000 if you are single) of gain is tax free. No requirement to buy another property, no need to sell the residence you live in now, and you can do this every two years. To turn your vacation home into your residence change your drivers license and voters registration to that address. Change your mail and tax return address as well.
For information about either one of these ideas, call one of our experts, toll free at 866-694-0204 or visit us on line at www.expert1031.com.
1031 Exchange Overview | Selling Your Home Tax-Free | Qualifying for Tax Deferral
Do You Qualify for Tax Deferral Under IRC 1031?
By Kennen S. Cohen, Colorado Division Manager, Asset Preservation, Inc.
THE OPPORTUNITY EXISTS FOR SUCCESSFUL VACATION/SECOND HOME 1031 EXCHANGES
Property owners throughout the nation are obtaining the benefit of full reinvestment of equity under Internal Revenue Code 1031. Many investors exchange out of a single family rental, duplex, or any other type of investment property and into an investment property held for investment in a resort or vacation area. Many tax/legal advisors believe it is possible to perform an exchange on a vacation property which is held for investment purposes .
SUPPORT FOR VACATION HOME EXCHANGES?
In Private Letter Ruling (PLR) 8103117, the IRS did allow for tax deferral when a property owner intended to acquire property for personal enjoyment and as an investment. As stated in this PLR, ...the house and lot you acquire in this trade will be held for the same purposes as the properties exchanged: to provide for personal enjoyment and to make a sound real estate investment. Although a PLR only applies to the facts and circumstances in a particular individuals specific situation, it appears, in this instance, that personal enjoyment of a property does not prevent a property owner from benefiting from a tax deferred exchange.
EACH INDIVIDUAL CASE MUST BE REVIEWED
Note: There are no regulations, statutes, or court cases which give a definitive answer on the exchange of vacation/2nd homes. Each exchange must be reviewed on a case-by-case basis. To qualify for an exchange, the property owner should be able to support that the property was held for investment.
A BRIEF ANALYSIS
IRC Section 1031 provides for the non-recognition of gain on the exchange of property held for productive use in a trade or business or for investment. Is a vacation property considered held for investment?
Reg. 1.1031(a)-1(b) states in the definition of like-kind that unproductive real estate held by one other than a dealer for future use or future realization of the increment in value is held for investment and not primarily for sale. It appears that even property owners who have never rented their vacation property but can substantiate that they acquired and held the property because they expected it to increase in value (a wise investment decision) may qualify for a 1031 tax deferred exchange. IRC 165 and IRC 280, which address when losses may be deducted on vacation homes, may provide additional guidance to investors.
It is a well known that many vacation areas have appreciated significantly and that often property owners purchase properties with the future appreciation in mind. A real estate investor should consult with their own advisors to discuss their specific situation and see if they may qualify for the benefits of a tax deferred exchange .
1031 Exchange Overview | Selling Your Home Tax-Free | Qualifying for Tax Deferral
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