There are currently some 15 million Americans who own real estate investment property, and more and more of them are discovering the advantages of using 1031 tax-free exchanges for deferring capital gains taxes when they sell. A 1031 exchange is a provision in the IRS code that permits investment property owners to sell properties and buy new ones without having to pay taxes on the sale of the old properties, assuming stipulations concerning the use of the proceeds and time limits have been met.
Investors have 45 days following the sale of their old properties to find a new one and to comply with particular written notice provisions, as outlined by the IRS. The purchase of the new property must then close within 180 days. If those provisions are met, the investor will pay no federal income taxes on the property, assuming the new property is an investment like the one just sold. The replacement property must be of equal or greater value.
The property can be multiple houses, farms, or other real estate, but it can't be the investor's principle residence. The IRS prohibits using a 1031 exchange for the purchase of a new home. However, there is an exception to that rule. If the investor rents out a home for two years following the exchange, that house can then be converted to the investor's place of residence, since the home was initially used to fulfill the stipulations of a 1031 exchange, which specify that an investment house must be replaced with another investment house.
If an investor chooses to take that route, after five years from the date of the new home's purchase, that home can then be sold and the taxes excluded, due to an IRS exclusion for the sale of a primary residence, which can be $500,000 for married couples and $250,000 for an individual.
This can be a great way to avoid taxes on a significant amount of profit from investment in houses, but you'll want to make certain you have followed the tax code meticulously. If you want to learn more about 1031 tax-free exchanges, you can visit http://www.irs.gov and consult with your own tax consultant, accountant, or attorney. It could save you thousands of dollars while you're moving up the ladder in your overall real estate investment strategy.
Copyright ? 2006 Jeanette J. Fisher
The rates for the sale of collectible property are much higher than those on the sale of real estate. So, is there any way to avoid paying inflated capital gains rates on the sale of your collector car? The answer is to make a 1031 exchange. This is a tactic that is often used by real estate investors, but that can be particularly helpful in the sale of collectible property.
By making a 1031 exchange instead of selling outright, you can defer your capital gains taxes indefinitely, allowing that 28% to be reinvested and continue working for you. This is useful for real estate investors, but even more so for those holding personal property for investment. Here are a few things that you should keep in mind when making 1031 exchanges on personal property, such as a classic car or other collectibles or antiques.
In this sort of situation, a 1031 exchange is a very good idea, but you must keep in mind that the requirements for like-kind exchanges on personal property are much more stringent than the like-kind requirements for real estate. This means that if you have a car, you can only exchange it for another car, not a crane or a backhoe. In addition, your car must be held for the purpose of investment or business, as must your replacement.
If you identify your replacement properties within the 45-day deadline, you can even put your proceeds towards the purchase of more than one replacement property. In addition, keep in mind that both the car that you are exchanging and the replacement must be held for business or investment purposes.
Now is the time to reap the benefits of your collectible car investment, but why sell outright and watch 28% of your profits go down the drain? A 1031 exchange gives you the opportunity to put the money that would have been lost to capital gains taxes towards a new investment, keeping your money working for you.
Both Jeanette Joy Fisher & Martin A. Steele are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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Martin A. Steele has sinced written about articles on various topics from Real Estate. United States property investors can save their money by utilizing a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A. Martin A. Steele's top article generates over 1000 views. Bookmark Martin A. Steele to your Favourites.