1031 Exchange rules 2015

For an exchange to be totally tax free- that is, for all the gain to be deferred-the reinvestment in the replacement property or properties must meet all the following rules : Rule 1: The replacement property must have an equal or greater acquisition cost than the adjusted sale price for the relinquished property. To put it simply, this strategy allows an investor to “defer” paying capital gains taxes on an investment property when it is sol as long another “like-kind property” is purchased with the profit gained by the sale of the first property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. Exchange Rules – The You Should Know.

Certain scenarios are good for an exchange , and others aren’t.

It states that none of the realized gain or loss will be recognized at the time of the exchange. For this reason, we offer details about a series of exchange basics on this page and a wealth of other reference materials on our site. Instant Downloa Mail Paper Copy or Hard Copy Delivery, Start and Order Now!

The taxpayer cannot receive, touch or control the funds generated from the sale of the old property during the period until the purchase of the new property. Investors should be aware of four basic requirements when entering into a delayed exchange , and should seek the advice of their tax accountant or attorney to ensure proper adherence to the tax code. In order to completely avoid paying taxes on the sale of your property, the IRS requires the net market value and equity of the property purchased must be the same as, or greater than, the property sold.

IRC (Internal Revenue Code). In your case, if your apartment building is owned by a legal partnership or an LLC, you, Fred and Sue must decide as a group if you’re going to roll the whole gain over by doing an exchange, or if you’ll all cash out and pay your taxes.

Little, MBA, CCIM, GRI. The statute says that you can not move into the new property for a period of years. There is a movement to overturn the ruling to months, but as of right now it is advised to wait at least years before moving into a replacement property.

In reality, the IRS indicates that you have to replace the VALUE of the debt that you had on the relinquished property. This like-kind exchange features real property of the same nature or character, regardless of grade or quality. The taxpayer must then reinvest into another investment or business property of equal or greater value. In a field heavy with specialized terminology, it’s essential to start with the basics.

No Installation Needed. If you have a small single family home, maybe you’re trading up for a multifamily, or if you have an apartment building you may want to trade for a commercial property. The Relinquished Property Must Be Qualifying Property. Investment property includes real estate, improved or unimprove held for investment or income producing purposes. At the closing of the first property the seller includes the exchange language in the buy-sell agreement.

It is not unusual for a taxpayer to finance the buyer in whole or in part. If multiple assets are sol the days are triggered with the first conveyance. The 45-days are based on calendar days and not extended if the th day falls on a Saturday, Sunday or legal holiday.

Instea the basis of the newly acquired asset is adjusted to the amount of the basis of the relinquished property, decreased by any money the taxpayer might have received as well as by the amount of gain or loss that was created by the exchange.

Strict adherence to the guidelines set forth within the tax code is required for a successful exchange. Savvy real estate investors have used it for decades. Although fees will vary from state to state, you can plan to expect costs to range anywhere from $5to $500.

It is extremely important that you take depreciation and depreciation recapture issues into account when evaluating the various options available to you for your real estate investment portfolio. First, the property being sold and the new replacement property must both be held for investment purposes or for productive use in a trade or a business. Sign-in to get full access to your membership.