ne of the very difficult defer the payment of capital
thing to achieve in Europe gains, under the conditions that
is managing to create a you use the proceeds of the sale
real estate fortune. Why is it in order to reinvest in a like
easier in the States ? kind asset.
One of the most important reason See the potential: you do not use
are taxes. Indeed, in Europe any precious cash to pay off taxes,
profit made on property is you can re-invest immediately.
subject to heavy taxes. So on top However, you need to understand 2
of extremely high transaction things.
fees (notary, lawyers, real
estate agents, transfer taxes and 1 - It is a deferment, so should
so on), you have to pay a large you sell without re-investing,
chunk of your capital gain as the capital gain will be taxed
tax. and you will have to pay.
In the states a wonderful 2 - In order to qualify certain
mechanism exists and it helped conditions must be met:
support the real estate industry.
This procedure originates in the a. the asset must be of like kind
beloved Internal Revenue Code,
specifically in the section 1031. b. the proceeds of the sale must
A 1031 exchange or Like kind be invested in a similar kind of
exchange is defined as follows: asset within 180 days of the
sale. (Furthermore, the property
If you own an asset, generally must be identified within 45
some kind of real estate such as days)
land or building and you sell it
with profit, you will be able to This is an effective way to defer
paying taxes.
you put your investment property
A 1031 Exchange is similar to a on the market. Then you make a
traditional IRA or 401K new offer to purchase the
retirement plan. In a investment property. The offer is
tax-deferred retirement plans, accepted. Escrow for the sale is
when assets are sold, the capital opened and preliminary title
gains that would otherwise be report is produced. Your advisor
taxable are deferred until provides the necessary exchange
beginning of the cashing out of documents to escrow closer for
the retirement plan. signing at property closing. Then
Escrow closes. Now, within the
It is the same mechanism for first 45 days after the close of
tax-deferred exchanges or real escrow on the sale of the
estate investments. As long as relinquished property, you
the money is re-invested in other identify the replacement property
real estate, the capital gains as required by Law. Last, within
taxes can be differed. 180 after the close of escrow on
the sale of the relinquished
How do you make a 1031 Exchange ? property you close on the
replacement property.
Once you have decided to pursue a Often, the most difficult part of
1031 Exchange, the process is a 1031 Exchange is identifying
rather easy. If you use a replacement property within the
professional, it should as well first 45 days following the sale
be carefully facilitated. So do of the relinquished property. Be
not hesitate to ask around. Once careful, the IRS does not grant
you have your advisor here is extensions.
what will happen:
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