Yup, we're talking about the 1031 Starker Exchange.
Simply put, this IRS tax law allows you to sell one investment property at a gain and buy another property without incurring income tax on the gain.
There is a very specific way of executing this type of transaction, so it is important to plan accordingly, or you may very well end up paying taxes.
Here are some simple guidelines:
- Both the property relinquished and the property received in the exchange must be properties that held for investment or for productive use in a trade or business.
- the property relinquished and the property received in the exchange must "like-kind" properties.
- The transaction must be structured as a reciprocal transfer of one property for another, as distinguished from a sale for cash and re-investment.
- Time is VERY critical. The investor must identify a limited number of potential replacement properties within 45 days from the date the relinquished property is transferred.
- The investor must then acquire one of the identified replacement properties by the earlier of 180 days from the date the relinquished property is transferred, or the due date (determined with regard to extensions) of the investor's tax return for the taxable year of the exchange.
Fortunately, like-kind exchanges are not just for large corporations. They are also accessible and beneficial to individual investors and small business looking to defer taxes on the sale of property. Investors often fail, however, to use the benefits of like-kind exchanges offer, mainly because these transactions appear too complex, or the disposition and acquisition of the properties do not coincide.
Would you like to take advantage of this tax loophole? Contact me to get started right away. Planning is everything!