1031’s Blog

Why You Don’t Have To Pay Your Capital Gains Taxes

March 3, 2009 at 11:30 pm | In 1031 exchange | Comments Off
Tags: 1031 exchange, 1031 exchange rules, 1031 tax exchange

Many investors make the mistake of selling their business or investment property and end up having to pay thousands of dollars to the government in capital gains taxes. 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.

This law defers and can even eradicate taxes you would normally have to pay if you were selling your property. However, the money you make from selling your property must be used exclusively to purchase a like-kind property that you also intend to use for business or investment purposes.

When you take advantage of the 1031 exchange laws, you can save a lot of money, thereby allowing you to leverage your equity by purchasing even more property (which may have not been possible without the added tax savings).

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.

Be sure that you select qualified intermediary (A.K.A. “Q.I.”) with a solid track record and professional reputation. Dealing exclusively with doing 1031 exchanges, a Qualified Intermediary is an expert with the facilitation of such a deal.

Your Q.I. provides a written agreement to change the transfer from and outright sale to an “Exchange” then transfers your relinquished property (that you are selling) and takes that money and uses it to purchase your replacement property on your behalf.

You must abide by the following 1031 rules to qualify for an exchange:

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. Secondarily, you will need to locate a property to replace your property if you have not yet done so, and make sure it is identified clearly in writing within 45 days to your Qualified Intermediary. 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.

Follow these 1031 rules and you will be in the best position to faciliate your exchange. The steps are very simple and even if the road along the way gets a little complicated, in the end it will put a big smile on your face. Do something good for yourself by retaining your capital gains with a 1031 Tax Exchange!

Investors in the U.S. can save big money by using a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is like an interest free loan from Uncle Sam.

Watch the video on 1031 exchange rules to learn more.