Like-Kind Exchange Transactions
1031 Like Kind Exchanges have been around for years and many savvy investors use them already but there are still many new investors and investors just getting into the market that don’t have a great understanding of the 1031 Exchange and how it can be extremely beneficial to the investor looking to increase their funds for re-investment. However the ability to defer taxes should be weighed carefully and with the help of an accountant, before making any decisions. James Moore and Company, our trusted accounting firm, was willing to once again lend their expertise to Waypoint Properties by providing the article below.
” A like-kind exchange involves the exchange of properties or the use of a third party (escrow company) when selling a property and purchasing another similar property. Individuals must meet two time limits to avoid paying tax on gains
When you sell business or investment property for a gain, you generally have to pay tax on the gain at the time of the sale. However, IRC Section 1031 provides an exception that allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. :
- Individuals have 45 days from the date the closing of the relinquished property to identify potential replacement properties. Identification must be in writing and signed by the individual and delivered to a person involved in the exchange (escrow company).
- The closing for the new property must be completed no later than 180 days after the sale of the relinquished property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier.
This exchange is typically beneficial if individuals have a large gain on a piece of property and want to buy a new property without having to sacrifice cash flow for taxes. In addition to like-kind property the exchange can also include cash payout, assumption of liabilities or property that is not like-kind. However, including other property should be carefully examined as it may cause a portion of the gain to become taxable.
If you have questions regarding 1031 exchanges and if the sale of your property qualifies, don’t hesitate to Contact us for additional information.”
By: Mark Payne, CPA and Nadia Batey, CPA, James Moore & Co.