7 Steps To 1031
The 7 Steps To *Saving Money*
With A 1031 Tax-Free Exchange!
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Step 1.
Determine Your Gain
First you must decide if a
1031 exchange is right for you (or not) by determining the tax-liability when you sell your property outright. More often than not - people find that there is a substantial gain and that it is appropriate to try to perform an exchange to avoid having to pay capital gains tax on the property.
Keep your options open at this early stage - you’ve got 45 days after the day of your closing to identify (in writing) what replacement property(ties) you want to receive as a part of your 1031 tax exchange.
Ask yourself these 2 fundamental questions… I. Have you held the property for use in your trade, business, or for investment purposes? If the answer is “yes”, then: II. Will your exchange be for “like-kind” property? If you are exchanging real estate for other real estate, the like-kind standard is very flexible. Personal property exchanges however (everything that is non real estate) have much more stringent requirements. Step 2.
Do You Qualify?
Step 3.
Sign The Purchase-Agreement
To Sell Your Old Relinquished-Property
At this point it's a very good idea to bring your
Qualified Intermediary onboard so that he can insert language into the purchase agreement in the form of "a cooperation clause".
Click here for a sample cooperation clause for your relinquished property.
Step 4.
Close On The Sale Of Your
Relinquished-Property
In addition to your closing documents (the deed, closing statement, etc), your Qualified Intermediary will prepare your 1031 documents to be signed in conjunction with your closing.
Typically, you (and the buyer of your property) – will sign the exchange documents at (or prior to) the closing. When you finish with your closing - the proceeds of the sale MUST be sent to your Qualified Intermediary, who then secures them (often in an Federally insured depository) thereby insulating you from receipt of funds.
If you handle (or receive) the proceeds from this transaction in any way, you will have to pay capital gains tax on them.
This is why it is crucial that you involve your Qualified Intermediary before closing.
Step 5.
Identify Your Replacement-Property
In writing, clearly and unambiguously, you must designate the replacement property that you wish to receive
- this is typically sent to your Qualified Intermediary within 45 days after closing.
To do this, you fill out an
identification form and
fax or mail this to the Intermediary - who then stamps it with "received on this date"
- files it, and sends a copy back to the seller.
1031-Tip:
To be sure that you have proof of sending the identification form in, be sure to send it via U.S. Mail so that
the envelope is postmarked within the 45 day identification period.
Step 6.
Closing On The Replacement-Property
Closing on the replacement property means MORE than just signing a purchase agreement. It means becoming the OWNER of the replacement property.
For example, in real estate – you typically receive a deed to the property for your transaction to be complete.
Step 7.
Report Your Exchange To The IRS
The 7th and final step is to report your exchange on a form 8824 with your tax-return for the year of the sale.
Your
Qualified Intermediary should send you a “summary letter” detailing the information that you will need to complete this form. This form essentially “connects the dots” between the sale of your old property to the sale of your new property.
Click here to download Form 8824
1031-Tip: Do NOT file your tax return before your exchange is completed. It may be necessary to file for an extension to get the full 180 days to which you are entitled – to completed your exchange.
Summary:
Simply put, a 1031 tax exchange was designed to provide U.S. taxpayers with an approved technique that allows the capital gains from the sale of an investment property (be it real estate, construction equipment, breeding stock, airplanes, collectors cars, etc.) to be diverted into the purchase of another "like kind" investment of equal or greater value...
Nation Wide Tax-Exchange Services:
| Call Me Directly (Toll Free) At 1-888-308-1031 For A Free Consultation And Estimate - Or Click Here To Start Your Exchange Online Today! |
