1031 Tax Deferred Exchanges Explained

Our company would like to share some information regarding a 1031 exchange, also known as like-kind exchanges. This is very relevant to an industrial business owner and may be seen as very beneficial to look into further. 1031 exchanges have been a vital aspect of the tax code since 1921. It allows investors or business property owners to sell a property, buy a new property, and defer paying capital gains tax on the sale, as long as both properties are of like kind. In the future, the taxes will have to be paid because it is a deferral, not an exclusion. There are many rules for how the exchange must be carried out, so we provided some options that may be useful for business owners of industrial buildings.

Like-kind Properties

  • Refers to the nature or character of the property, rather than its grade or quality
  • Any real property held for productive use in trade or business, investment, whether improved or unimproved, is considered like-kind real property.
  • Personal property is excluded and not eligible for 1031 exchange tax deferral.

Drones_in_commercial_and_industrial_constructionPros of 1031 exchange

  • By deferring taxes, there is more money currently available for investment.
  • The option to exchange and replace properties for others with less responsibility, if you own several properties that are burdened with extensive maintenance costs or requiring more intense management.
  • More wealth and asset accumulation, compared to a real estate investor that chooses to sell and pay taxes each time a sale occurs.

Exchange types

1. Simultaneous exchange

  • Occurs when the replacement property and relinquished property close on the same day

2. Delayed Exchange

  • Occurs when the exchanger relinquishes the original property before he or she acquires replacement property.

3. Reverse exchange

  • Occurs when you acquire a replacement property through an exchange accommodation titleholder before you identify the replacement property

4. Construction/improvement exchange

  • Allows tax payers to make improvements on the replacement property by using the exchange equity

As you can see, there are many considerations when it comes to real estate investing, and the choice to utilize a 1031 tax deferred exchange is just one of many as you navigate the process of purchasing your next commercial property. The team at APPRO and CERRON is well versed in this and many other options available for real estate investing. Please contact our team with your questions and to let us know how we may help with your next commercial property investment.

{{cta(‘d7dfe876-5d8f-459f-88d9-69bf94f31a1c’)}} 

If  you would like to learn more about 1031 Tax Deferred Exchanges, please click on the link below to learn more:

{{cta(‘8d666ca0-8d28-4cb5-ac0a-8de1cfa10c2d’)}}

About the Author:

Jackson Matasosky is a guest author with the team at APPRO and CERRON. Jackson is a full-time student at the University of Kansas (KU), studying Finance and Economics in their School of Business. 

 

Image Source: Man standing at window via Freepik.com (designed by Pressfoto); drone/aerial image via APPRO by Brandon Rowell Photography.

Trading Up: The Basics of a 1031 Tax Exchange

Trading Up: The Basics of a 1031 Tax Exchange

A Commercial Real Estate Topic Review of the purpose, rules & options in a 1031 Tax Deferred Exchange

1031 Exchange How to by CERRON Commercial PropertiesI’ll start by saying you should consult with your tax and financial advisors for information on whether a 1031 Exchange is right for you and your financial goals. I can help you find the new property and also help you sell the old property.

A 1031 Exchange can be a great tax benefit for someone that wants to stay invested in commercial real estate and would also like to trade up and improve their commercial investment. Maybe that office warehouse with the low ceilings and dated office finish has become increasingly expensive to keep up and to lease out. Maybe a newer, high clearance warehouse with a beautiful office space and state of the art cabling and communication capabilities is just what your renters are looking for. You’ve just hit on the perfect 1031 exchange scenario. Sell that old building and buy one that fits your goals without having to give Uncle Sam any of your hard earned commercial investment profit.

There are a few things you need to know about 1031 exchanges before you take my advice and call Cerron for your property solutions. So what is a 1031 Tax Exchange? In this article I’m talking about a 1031 (also called “like-kind exchange”) being used to swap one commercial property investment asset for another and not losing 15 to 20 percent to the government in tax liability. In other words, you can change the form of your investment (trade up) without cashing out and being liable for capital gains tax, the tax is deferred.

Sorry, you can’t use a 1031 exchange for personal use. If your spouse would like a bigger, nicer, more expensive house, that’s a personal problem and a 1031 isn’t going to work to solve it. It’s for commercial investment property. There are other rules that apply also. You need to identify your property that you’re selling for a 1031 exchange before you close on it. Then you must submit the replacement property to a qualified intermediary in writing within 45 days. The qualified intermediary will hold the money from the property you sold until you purchase the new property and will facilitate the transaction. You must also close on the new like-kind property within 6 months of the sale of the original property. The IRS gives like-kind property a surprisingly liberal meaning so it may be possible to sell a farm and buy a shopping center. To get the full benefit the new property should be of equal or greater value.

There’s a quick lesson in 1031 Exchanges. Any one of us at CERRON Properties would be glad to help you get more information and help you find the perfect property for your 1031 Exchange.

Thanks,

Dan Huntington