Why pay capital gains tax on the sale of your rental?
Have you ever considered exchanging your rental property in the North for a rental in Florida — one that you can also use for your vacation?
What is a 1031 Like-Kind Exchange?
Under Section 1031 of the Internal Revenue Code, investment or business property owners can sell one property and use the proceeds to purchase another investment property while deferring capital gains tax. A 1031 Exchange is one of the most powerful tax deferral strategies remaining to taxpayers.
What kind of property qualifies for a 1031 Exchange?
You may have heard the term “like kind.” This is a federal tax term relating to the nature and character of real estate in the hands of the owner rather than its grade or quality. To qualify for a 1031 Exchange, you must trade business or investment real estate for other business or investment real estate. You can trade raw land for a rental home, an apartment building for a shopping complex, and so forth. The key words are “business” or “investment” real estate. A 1031 Exchange cannot be used in the purchase or sale of a personal residence.
How do I perform a 1031 Exchange?
A Qualified Intermediary is essential to a defensible 1031 Exchange. Although the process of completing an exchange is relatively simple, the rules are complicated and filled with potential pitfalls. A Qualified Intermediary works closely with all parties involved to ensure a smooth transaction, holds the exchange proceeds in a separate exchange account until the funds are used to purchase replacement property, and prepares all the legal documents necessary to properly complete the exchange.
How do I get more information on 1031 Exchanges?
We recommend Linda Hughes at Real Property Exchange Services, LLC. Linda has worked closely with the McMillan team and its investors on numerous exchanges during the past several years. Real Property Exchange Services provides the knowledge, experience and expertise you need to successfully complete an exchange. As a member of the Federation of Exchange Accommodators, they also receive timely updates on new and pending state and federal legislation, IRS and Treasury rulings, and court decisions relative to 1031 Exchanges. If you would like more information or a copy of their brochure, you can contact Linda Hughes directly at 941-628-1264, or you can contact the McMillan team.