1031 Exchange Lawyer in Central Florida
Under Internal Revenue Code 26 U.S.C. 1031, there is a tax deferment for the exchange of “like- kind” property held for business or investment purposes. Like-Kind typically refers to similar property that is greater in value. For example, if an investor sells a property for $500,000.00 (including closing costs) and reinvests the money into a “like-kind” or similar property worth $800,000.00 (including closing costs), the investor will not be taxed on the $500,000.00 earned at the time of the sale of the first property. The tax on the $500,000.00 (including closing costs) will be delayed. On the other hand if the investor sells a property for $500,000.00 (including closing costs) and reinvests the money in to a property worth only $400,000.00, the investor will be taxed on the $100,000.00 gain he receives.
How long do you have to complete a Section 1031 Exchange?
The entire 1031 exchange must be completed within 180 days. Once you sell your first property (the relinquished property) you have 45 days to identify a new replacement property. Once you identify your new replacement property you have 135 days to complete the entire exchange. You have a total of 180 days after you sell the relinquished property to complete the entire exchange. The deadlines are sensitive and extensions are very rarely granted. It is important to hire an experienced 1031 Exchange Attorney to help you through the process. If the exchange is not done correctly, the entire gain on the relinquished property can be taxable.
What types of properties are considered “Like-Kind”?
Under the Internal Revenue Code, almost any type of real property within the United States will be of “like-kind” to other types of real property within the United States. For example, a vacant lot in Iowa is “like-kind” to an office building in Texas. Personal property and livestock are treated differently. Not all personal property is considered to be of “like-kind” and livestock of different sexes are not considered “like-kind”.
Section 1031 does not apply to exchanges of:
- stock in trade or other property held primarily for sale,
- stocks, bonds, or notes,
- other securities or evidences of indebtedness or interest,
- interest in a partnership;
- certificates of trust or beneficial interests, or
- choses in action
It is important to consult with an experienced 1031 Exchange Attorney about what properties do and do not qualify as being “like-kind”.
What is a Reverse Exchange?
A reverse exchange happens when the new replacement property is found before the sale of the relinquished property. Reverse exchanges are complex and it is important to consult with a 1031 exchange attorney.
A qualified intermediary is someone, other than you or your attorney, who facilitates the exchange. They act like an escrow and they hold the property and proceeds until the exchange is complete. The qualified intermediary also prepares the documents to complete the exchange. When choosing a qualified intermediary, you want to makes sure they will be able to meet their contractual obligations. An experienced 1031 Exchange attorney can help you choose a reliable and trust worthy qualified intermediary.
When do I pay my deferred taxes?
When the replacement property is sold for the last time and no longer part of any exchanges, the original deferred gain, plus any additional gain acquired in any subsequent exchanges, is taxed. It is important to property report your 1031 Exchanges to the IRS to keep track of all deferred taxable gains.
Do I have to report a 1031 Exchange to the IRS?
Yes. You have to report a 1031 exchange to the IRS. When you file your taxes, you will report the exchange on Form 8824. Payment of taxes is postponed for 1031 exchanges. However, if you do not report the exchange, you can be held liable and penalized.
Contact Our Orlando 1031 Exchange Attorney
Individuals should beware of scams to exchange property that does not qualify for a 1031 exchange. Be careful and do not be misinformed. Consult a 1031 Exchange Attorney at NeJame Law for more information on 1031 Exchanges. Please contact our 1031 exchange lawyers for an evaluation of your case. We can be reached at our offices 7 days a week at 407 500-0000. You may also fill out the online form provided on this page or email us at RealEstate@NeJameLaw.com.