The following is an article from the Coldwell Banker St. Croix Realty April 2017 Newsletter:
It’s tax time. If you talk to real estate investors, many are doing 1031 Exchanges. A tax-deferment strategy, a 1031 Exchange allows sellers to postpone recognition of capital gains if they purchase a like-kind property (or properties—and “like-kind” doesn’t mean land for land or a condo for a condo. As long as it’s an investment property, it can work.) with profits from their sale. Rules apply, and sometimes the rules change.
In his Real Wealth Network article “How To Do a 1031 Exchange: Important Rules and Definitions to Know for 2017,” Ben Erik Smith explains the procedure. He also advises use of a 1031 Exchange facilitator. You may speak to one of our excellent St. Croix attorneys about this because many have been involved in these transactions.
- A 1031 Exchange pertains to investment or business properties only.
- “Like-Kind” means you swap a property for another investment or business property. You may exchange a rental house for a commercial space.
- The purchase price and the loan amount on the new property must equal or surpass that of the replaced property.
- You must identify a like- kind property or properties within 45 days of your original closing.
- You must purchase the new property within 180 days of your closing.
- The title holder must match on both the old and new properties.
- The IRS permits partial 1031 Exchanges when the new property is of lesser value; you pay capital gains taxes on the difference.
Note: 1031 Exchanges are not limited to real estate transactions.