WHAT IS A 1031 EXCHANGE?
Example: An investor buys a strip mall (a commercial property) for $200,000 (his cost basis). After six years he could sell the property for $250,000. This would result in a gain of $50,000, on which the investor would typically have to pay three types of taxes: a federal capital gains tax, a state capital gains tax and a depreciation recapture tax based on the depreciation he or she has taken on the property since the investor purchased the property. If the investor invests the proceeds from the $250,000 sale into another property or properties (without touching the proceeds and using a Qualified Intermediary), then he would not have to pay any taxes on the gain at that time. An owner of a detached house on 3 acres (12,000 m2) is transferred by his employer to another state. Rather than selling the home, which will no longer be his personal residence, he chooses to rent it out for a period of time. After ten years, he decides that he wants to sell it but, at the same time, he has a grown son who will be going to college in yet another state. He decides that he wants to buy an apartment building in the college town for the son and other students to rent while they are in school. His house has appreciated from $200,000 to $300,000. Therefore, he arranges for an IRS Section 1031 exchange, and buys the new property, thus avoiding the capital gain at that time. Caution—in the aforementioned example, the investor would need to substantiate his or her [investment intent] to the IRS by showing an arm's length lease to the son and other students, and investor should declare income and take on offseting depreciation deduction. In addition to the sale of real estate, selling an interest in real property may also qualify for a 1031 Exchange. An example of this would be the sale of an easement. (Source WIkipedia)
WHY USE 1031TRX IN NEW YORK?
1031trx is a professional QI that validates 1031 exchanges across the United States by structuring them under “safe harbor” provisions and IRC §1031. 1031trx understands the stress that inevitably surrounds real estate transactions. Our commitment is to ensure a smooth exchange process, with clear and structured guidance to all parties involved in the transactions.[ Read More Our Services ]
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