|Real Estate Information|
What is Tax-Deferred Exchange?
Under Section 1031 of the Internal Revenue Code, owners of real estate held for investment or use in a trade or business can swap their property tax-free for "like-kind" real estate.Exchanges are made for people wanting to stay invested in real estate, increase their leverage and to avoid paying hefty taxes upon the sale of property.
Non Qualifying Properties
- Personal Residences
Reason to Exchanges
- Restoring Depreciation that will soon expire - by exchanging one property for anotherof greater value.
- To upgrade size and/or quality of investment. An exchange can be utilized to combine the equity of one or more properties into a larger singular investment.
- To change investment location. An exchange can be executed in anticipation of markettrends to maximize appreciation potential.
7 Steps for a Successful 1031 Tax Deferred Exchange
Step 1: Consult with your tax and financial advisors to determine if a tax deferred exchange is appropriate for your circumstances and compatible with your investment goals.
Step 2: Listing the Relinquished Property for sale with a licensed real estate broker. During the first step the Exchanger will list the Relinquished Property with a real estate broker. The broker/agent will disclose the intent to complete an exchange in the listing agreement.
Step 3: Offer, Counter Offer and Acceptance. The Exchanger enters into a contract with the Buyer for the sale/exchange of the Relinquished Property. The broker/agent discloses the Seller/Exchanger's intent to exchange into the Purchase Agreement and Receipt for Deposit.
Step 4: Open escrow for the Relinquished Property and coordinate with the Facilitator. The Facilitator prepares the exchange agreement and coordinates with the escrow holder to close escrow as Phase I of a tax deferred exchange. Important: The exchange agreement must be in place and signed by all parties prior to close of escrow. Additionally, all earnest money deposits should be placed with the title company.
Step 5: Replacement Property Identification. After closing escrow for the sale of the Relinquished Property, the Exchanger must identify all Replacement Property within 45 days from day after close of escrow.
Step 6: Contracting for the Replacement Property. After closing on the Relinquished Property the Exchanger has 180 days to acquire the Replacement Property. With the help of his or her agent the Exchanger enters into contract to purchase the Replacement Property from the Seller. In the contract to purchase the agent discloses the Exchanger's intent to complete the exchange and obtains the Seller's cooperation.
Step 7: Open escrow for the Replacement Property. The Facilitator prepares the Phase II Exchange Agreement and coordinates with the Replacement Property Escrow holder. The funds held in trust by the Facilitator are placed in escrow and the Replacement Property is purchased by the Facilitator from the seller. The Facilitator then transfers the Replacement Property to the Exchanger and the transaction is closed as Phase II of a delayed exchange.
Identification of Replacement Property
Regardless of the number of relinquished properties transferred by the Exchanger as part of the same exchange, the maximum number of replacement properties that the Exchanger can identify is as follows:
3 Property Rule: Three properties without regard to the fair market values of the replacement properties.
200 Percent Rule: Any number of properties as long as their aggregate fair market value as of the end of the identification period does not exceed 200 percent of the aggregate fair market value of all the relinquished properties as of the date the relinquished properties were transferred by the Exchanger.
95 Percent Rule: Any number of replacement properties identified before the end of the identification period and received before the end of the exchange period, but only if the Exchanger receives before the end of the exchange period identified replacement property the fair market value of which is at least 95 percent of the aggregate fair market value of all identified replacement properties.
Glossary of Terms
Accommodator: A principal involved in the exchange transaction who agrees to assist the exchanger to effect a tax-deferred exchange. Same as Facilitator or intermediary.
Accommodating Party: In an exchange of properties there is always a person or entity that steps in to accommodate or facilitate the exchange transaction. Depending on how the transaction is structured, the accommodating party may incur additional liability in their efforts to assist in the exchange.
Acquisition Property: Replacement property
Actual Receipt: When the Exchanger actually receives the funds from the sale of the Relinquished Property. Receipt of cash by the Exchanger before he receives the Replacement Property may be enough to destroy the tax deferred treatment of the transaction.
Adjusted Basis: Generally speaking the adjusted basis is equal to the purchase price plus capital improvements less depreciation. Transactions involving exchanges, gifts, probates and receiving property from a trust can have an impact on calculating the property's adjusted basis. The taxpayer's C.P.A. or tax advisor is the party to look to for these types of questions.
Boot: Boot is any type of property received or given up in an exchange that does not meet the like kind requirement. Generally speaking, receiving boot will trigger the recognition of gain and taxes. If the Exchanger receives boot, they will be taxed. Boot added or given up by the Exchanger does not necessarily trigger a taxable event. In a real property exchange, boot received is any type of property received by the exchange which is not real property held for investment or productive use in a trade or business.
Cash Boot: Cash Boot consists of cash and nonqualifying property. A car, a boat or receipt of the beneficial interest in a promissory note are all examples of Cash Boot.
Mortgage Boot: Mortgage Boot consists of the secured debt given up and received as part of the same exchange. If the exchanger increases the amount of debt on the Replacement Property verses the Relinquished Property, they have given mortgage boot. If the exchanger decreases the amount of debt on the Replacement Property verses the Relinquished Property, they have received mortgage boot. Generally speaking, mortgage boot received triggers the recognition of gain and it is taxable, unless offset by Cash Boot added or given up in the exchange.
Constructive Receipt: Even if the Exchanger does not actually receive the proceeds from the disposition of the Relinquished Property, the exchange will be disallowed if the Exchanger is treated as having constructively received the funds.
Delayed Exchange: Also called non-simultaneous, deferred and Starker. A delayed exchange is a tax deferred exchange where the Replacement Property is Received after the transfer of the Relinquished Property. In a delayed exchange the Exchanger must identify all potential Replacement Properties within 45 days from the transfer of the Relinquished Property and the Exchanger must Receive all Replacement Properties within 180 days or the due date of the Exchanger's tax return whichever occurs first.
Like-Kind Property: Refers to the nature of the property the Exchanger gives up or receives as part of the same tax deferred exchange transaction. In order to qualify as like kind the property given up or received must be held for productive use in a trade or business or held for investment to qualify as like-kind.
Realized Gain: Refers to a gain that is not necessarily taxed. In a successful exchange the gain is realized but not recognized and therefore not taxed.
Recognized Gain: Refers to gain which is subject to tax. When someone disposes of property at a gain or profit in a taxable transfer such as a sale, the gain is not only realized, but recognized and subject to tax.
Relinquished Property: The property given up by the exchange to start the 1031 exchange transaction. This property usually passes through an accommodator before transferring to the ultimate Buyer.
Reverse Exchange: An exchange where the Exchange acquires or gains control of the Replacement Property before disposing of the Relinquished Property.
Simultaneous Exchange: Also referred to as a concurrent exchange. A simultaneous exchange is an exchange transaction where the Exchanger transfers out of the Relinquished Property and Receives the Replacement Property at the same time.
Transfer Tax: A tax usually assessed by a city or county on the transfer of property. It may be based on equity or value. When structuring a multi-party exchange an exchange agreement will usually call for direct deeding to eliminate additional transfer tax.
A taxpayer must identify replacement property within 45 days after the transfer of the relinquished property, and acquire the replacement property within the earlier of 180 days of the relinquished property closing, or the due date of the taxpayer's tax return.This means that 1031 escrows that close after Oct. 18 will not have the full 180 days to acquire the replacement property unless the taxpayer files an extension.
Contact your CPA or tax attorney for advise.
By Neda Dabestani-Ryba
Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President's Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: http://neda.dabestani.pcragent.com/Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity
This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news
Pittsburgh housing market a boon to attracting Amazon, real estate experts say - Pittsburgh Post-Gazette
Where are South Florida's 8 Amazon headquarter sites? Real estate experts identify potential candidates - Sun Sentinel
All Things Real Estate: Builder or reseller? Attorney may have to figure it out - Fairfield Daily Republic
Mancos Real Estate
Real estate: availability and costIn 2000, the median home value for a single-family residence in Mancos was estimated at $94,200 as compared to the U.S.
If You Cant Afford to Retire...Move
According to Warren Bland, PhD, an award-winning author and geographer at Cal State, people have a great option. It's called "equity-take" that is, the difference in cost of comparable housing between your present community and the more affordable one to which you could move.
Selling Your House Fast!
The physical senses of buyers respond to a home's design, and buyer base their purchase decisions on what the see, hear, smell, touch, and even taste. But what do buyers actually want?All buyers what a home that most closely suits their needs and makes them feel a sense of happiness.
How to Become a Successful Real Estate Developer
Real estate investment and development has never been a more popular pastime or career changing challenge; if you would like to learn seven secrets for consistently successful real estate investing through development or you would like to know how you can continue to profit from property even if the market takes a downward turn just read on?1) Do Your Location Homework - did you know that through successful and sustained location research professional property investors actually continue to profit during a market down turn? It's true - whatever the market conditions you can apply their location research approach to your real estate investments and also make consistent profits from property.Take the necessary time to learn all about a town or city you're considering for your next property development purchase and discover where the up and coming areas of that town are likely to be.
How To Simplify Your Real Estate Buying/Selling Experience
Today's real estate consumer has a lot to consider during the sale or purchase of a home. Be it waiting for the right buyer/seller, mortgage rates, or the moving truck, the experience can take a bit of patience on the part of the consumer.
Much Ado About Mansionization?
Is there a perpetual shadow hovering over your house? Do you feel as though you live in a Batman movie? You may be the victim of a neighboring McMansion or a new development trend called mansionization, the housing industry's equivalent to bigger portions and fast food.These mansionizers-who are frequently "spec" builders--buy small or dilapidated homes, raze them and erect massive structures, often resembling sterile apartment buildings.
Investment Concerns for Selling Your Home
Besides the emotional upheaval of uprooting from your home, your property is most likely the biggest investment you have ever made, and its sale causes financial stress as well. You must protect your investment nest egg and secure your future.
Do I Have To Buy Real Estate Through An Agent?
Sometimes when we are very busy professionals and very rich it might be convenient to let an agent do the groundwork for us. Letting them make appointments, drive to the property, roam through house after house sizing them up until they find a few great homes that might be just perfect for us.
Selling by Owner Escrow or Closing Checklist
Home sellers should keep on top of their pending sale; especially when selling without the assistance of a real estate agent. Sometimes busy real estate agents forget to monitor all aspects of a pending sale.
Secrets of Making Money from Real Estate - Part 4
Analyzing and finding the right property deals:Firstly read my other article on how to Buy the property at a discount, this will cover the basics on how to buy property at a lower than market value price. This is very important because It can completely change the aspects and financing the deal.
Questions You Always Wanted To Ask A Master Builder But Never Had The Chance
Building a house (or lots of them) seems to be an area of knowledge that is kept secret (insiders only), with clients kept in the dark and fed on expensive "cow dung."A while ago I asked my US readers of my e-book, "Residential Development Made Easy" for questions they would like to ask a Master Builder.
The Person With The Most Money Wins!
More money can mean better:- Health Care - Relaxing Vacations and Adventures - Education for your children or yourself - Better home than you have nowBest of all it can reduce stress from not having to worry about money!Many of us have problems in life that additional cash will help solve the situation. Did you know that 80% of problems in life could be simply resolved with additional cash.
Flipping Fixers: Using Transformation Psychology for Top Dollar
Satisfying and lucrative real estate investment depends upon your correct assessment of profit potential, of course, but your ultimate success depends on your ability to transform a fixer into a dollhouse. The renovation process involves physical work and choosing the best supplies, in order to create maximum positive emotional effect and profits.
Looking into Buying Mobile Homes?
To own a home is one of the dreams every common man cherishes, even from the childhood. With hard work and years of savings, he might be able to build or buy a dwelling for him and his family.
10 Top Considerations For Those Buying Property Abroad
Are you one of a growing number of people considering buying a second home in the sun, an idyllic home from home abroad or a lucrative investment property overseas? If so you're not alone! Statistics show that globally we're all on the move with a recent survey by YouGov revealing that 55% of adult Britons were "seriously considering settling in another country" and the British Centre for Future Studies predicting that by 2020 one tenth of the current British population will be living or working abroad!Add to this the fact that there was a 250% increase between 2000 and 2004 in the number of Britons buying property abroad solely for investment purposes, that over one and a quarter million Brits own second homes in Spain and France already and that the Office for National Statistics in the UK recently revealed that 200,000 Britons go overseas yearly with the intention of remaining for at least twelve months, and you can see that the passion for buying that dream home abroad is universal.But what's fuelling this ever growing interest in the overseas property market?Well, despite reports to the contrary the UK housing market is seemingly ever on the up and those Britons who're acquiring massive levels of equity through their residential property are considering selling up, buying abroad and establishing a pension fund simply on the back of what they have left over from their house sale.
How To Go About Selling Your Home On Your Own
In days of booming real estate, you would think that selling a home shouldn't be too much of a task. And if it's going to be that easy then why not do it on your own and save yourself on thousands of dollars in commissions.
Flipping or Fixing Houses for Profit
Many real estate investors make $5,000 to $10,000 or more by flipping houses. These investors buy a home from a distressed seller and resell it quickly for a profit.
Home Buying: Things To Keep In Mind
So you've decided you want to own a home and now you want to begin your search for one. Before jumping into a home search, there are a few things you should keep in mind when going about buying a home.
Real Estate Bubble Adding Price and Risk to Location, Location, Location Mantra
Real estate investors familiar mantra location, location, location are nervously replacing the second and third locations with price and risk. As home prices rise to new levels daily and worries that some markets homebuyers are jumping into might start to loose air, their appetite for risk is creating some sleepless nights.
Is An Old Home for You? - The Pros
If you prefer a home that is unique and has character, you probably are giving some thought to buying an older home. Before buying, it's a good idea to carefully evaluate the pros and cons of owning the home.
|home | site map|
|© 2006 TIGER MEDIA|