The 1031 Tax Strategy
UNDERSTANDING TAX-DEFERRED EXCHANGES
For investors, a 1031 Exchange may provide an effective tax strategy for tax deferral as part of succession and estate planning.
Section 1031 of the Internal Revenue Code provides an effective strategy for deferring the capital gains tax that may arise from the sale of your business/investment property.
By exchanging the property for like-kind real estate, property owners may defer their tax and use all of the sale proceeds for the purchase of replacement property.
Benefits Of Completing A 1031 Exchange
Integrating private real estate into an investment portfolio can enhance returns, reduce risk and volatility, and provide distinctive diversification benefits.
Diversification – sell a single building and purchases smaller properties.
Consolidation – sell multiple properties and buy one larger property such as an apartment block or commercial strip center.
Move Markets – sell in California and buy in another state.
Wealth Transfer – sell one property and buy three to pass on to heirs.
The Exchange Process
The seller must purchase like-kind property.
The seller may not take constructive receipt of the sale proceeds of their property. They must use a qualified intermediary.
From the time the qualified intermediary receives the proceeds, the replacement property must be identified within 45 days from the close of escrow.
The identified replacement property must be purchased within 180 days from the close of escrow.
Which Properties Qualify
Both the property being sold and the property being purchased must meet certain criteria. Both must be held for use in trade or business or for investment. Most real property will be like- kind to other real property.
Property Indentification Rules
3-Property Rule
The taxpayer may identify up to three potential replacement properties and purchase any or all of them, regardless of their total value.
200% Rule
The taxpayer may identify more than three potential replacement properties if their total value does not exceed 200% of the gross sale price of the relinquished property.
95% Rule
The taxpayer may identify any number of potential replacement properties regardless of their total value so long as they purchase 95% of the total value of the identified properties.
As a Qualified Intermediary, Hartfield Financial and Insurance Services, Inc provides the expertise competence, financial strength and integrity to facilitate a 1031 Exchange.
1031 Exchange Disclaimer
An Exchanger should always consult with competent, independent legal and/or tax advisors to determine the applicability of any IRC 1031 tax deferred exchange benefits. Hartfield Financial & Insurance Services, Inc., (HFIS Advisors), or its Advisors do not provide any tax or legal advice.
