1031 Exchanges…what are they?
Do you currently have a property (residential, commercial or land) that you are thinking of selling but don’t want to pay capital gains? The IRS rule 1031 is exactly what you need in order to defer your taxes. This is a legal method to sell your current property and exchange it for a different one. Many times people want to buy in another state, or they want to change from residential to commercial, that is completely legal. Here is the process.
- You will want to hire an intermediary. This is a company that holds your proceeds from the sale of the 1st property.
- You will next want to put your current property up for sale. Once you have an accepted offer you can start looking for a new property.
- You must identify a new property within 45 days of the 1st property closing. The sales price of the new property must be equal to or greater than the original property.
- A good plan would be to identify 3 properties within that 45 days in case one falls out of escrow.
- You must close on one of the 3 identified properties within 180 days of the original property closing.
- The intermediary will transfer the funds from the original property directly to the title company at closing.
There are fees you pay to the intermiediary, but those are minimal compared to what you would pay in taxes. You can do as many 1031 exchanges as you want, but eventually when you sell that last time without exchanging it for another property, then the taxes will be due.
The process of selling and buying is the same as with any other transaction. The Realtors handle the listing and purchase just like they normally would but you would notify the title company of a 1031 exchange and put the intemediary and the escrow officer in contact with each other so they know where to send the funds. That is it. It is pretty seamless.
If you would like more information on 1031 exchanges, please contact Betsie Melter Realty ONE Group 480.734.3644
I have completed many 1031 exchanges throughout my real estate career.
