1031 Exchanges are a tremendous investment tool to help preserve your wealth and increase your assests. They are a way to defer your taxes that is accepted by the IRS. An experienced Realtor is essential for insuring a successful 1031 transaction. Here are some resources I've provided to help you maximize the benefits and minimize the risks involved with 1031 Exchanges...
Primer on 1031 Exchanges
By plowing the proceeds of a property sale into a another property, you can defer taxes. Here's how...
Small Business Review
Wikipedia - 1031 Exchange
LawrenceYerkes.com [1031 Exchange Resources]
Popularity of 1031 Exchanges Surges
Investors who want to cash in their chips on real estate bought as an investment--but defer the tax bill, in some cases forever--can do so by trading into another piece of property. This strategy isn't new, but it's enjoying a resurgence in popularity now because many investors believe that real estate values have peaked in some markets. They want to lock in their gains and shift into other holdings without a big payment to Uncle Sam. That's where the 1031 exchange comes in. (Source: RealEstateJournal.com)
Full Story . . .
Past Myths: Investors love them, but they can backfire if you don't know the ropes
"Once the province of commercial brokers, Internal Revenue Code section 1031 exchanges are increasingly being used by savvy residential investors to defer capital-gains taxes. Most people know the basics of a 1031, or like-kind, exchange: For a property you plan to sell, you have to identify replacement property within 45 days and close on the purchase within 180 days. Beyond that a lot of misinformation exists. Understanding these common misconceptions will help keep you and your client out of trouble." (Source: Realtor Magazine)
Full Story...
NAR Field Guide to 1031 Exchanges
Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties. 1031, or tax-deferred, exchanges hold great advantages for investors. This Field Guide provides access to articles, manuals, forms, ideas, and other information to help you, the investor, and your Realtor.
Click Here for NAR's 1031 Exchange Field Guide
Flipping Properties Can Be Costly -- Real-Estate Flip Deals Have a Catch
Amateur "flippers" in the real-estate market have more to worry about than a bubble. Many of them could be facing an income-tax audit -- and higher tax bills than expected.The popularity of so-called flip deals has made section 1031 of the Internal Revenue Code popular with real-estate speculators. In a 1031 exchange -- also known as a "like-kind" exchange -- a person who sells a business or investment property can defer capital-gains taxes by immediately rolling the gains into a similar piece of property.The trouble, tax experts say, is that people don't understand the rules. Many trust the advice of real-estate brokers, who often aren't well versed in tax law. Some amateurs are buying and selling properties too quickly, running the risk that the Internal Revenue Service may deem the transactions a person's trade or business, with gains taxed as ordinary income and subject to self-employment taxes. (Source: WSJ - DJWirenews)
Full Story
See related blog article:
1031 Exchange Expense Inclusions
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1031 Exchange Resources
6 comments • Lawrence Yerkes - Broker Associate, Southern New Jersey Real Estate Services • August 24 2006 06:39AMComments
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Everyone has an opinion, but when dealing with the IRS the best opinion to have on your side of the room is a CPA....unless all the various friends who have opinions are willing to go to court with you and help pay any penalties, etc.
We are the experts in Real Estate, and tend to discourage uninformed intrusions from well meaning friends and family members into negotiations with our clients. I suggest the same perspective is appropriate here - if it's a tax/accounting question - take advice from your CPA.
The best way to defer capital gains is to use 1031 exchanges, but as this article describes, "It's a tedious process and not many people know how to work the deal."
Defer'Em is one of the best resources for being able to understand the confusion - boot, taxable gain, deferred gain, and new cost basis - and it has a tool you can use to generate IRS Form 8824 for reporting Like-Kind Exchanges on your tax return. Defer'Em is a guided approach that helps you optimize deferrals using all deductible closing costs and exchange fees, and it also generates an Exchange Report which will help you visually understand all the elements of your 1031 exchange.
Another tool that is very useful is Depreciate'Em, which accelerates depreciation by segmenting deductions, resulting in substantial tax savings. I came across both of these tools when I was reading a Forbes.com article about how landlords often miss major savings.
It's really nice to find resources like these that can help you learn and take advantage of tax-saving opportunities. I had a lot of difficulty understanding depreciation and 1031 exchanges, and even more difficulty reporting them, but tools like these make it very simple for anyone to do
Mr. Yerkes-
I like this excerpt of your post-
Some amateurs are buying and selling properties too quickly, running the risk that the Internal Revenue Service may deem the transactions a person's trade or business, with gains taxed as ordinary income and subject to self-employment taxes.
There's a saying in tax law: "whether you flip houses or flip hamburgers, the result is ordinary income.."
1031 is a vehicle to offset long-term capital gains...while there is no set holding period to substantiate your intent to "hold a property for investment", most QIs suggest one year and a day with the indicia of investment ownership such as:
Can you join my active rain group on cap gains and post your blog entry on this issue to that forum as well! http://activerain.com/groups/capgains
Best regards,
James
one year and a day isnt the true test. document things! one year and a day will help avoid audits though.
http://www.exchange1031.us/
Thank you for the information.