|
|
Save with a |
It´s easy to participate.Fred Prescott, Broker and 1031 Exchange Consultant, works directly with Asset Preservation, Inc. (API) a national leader in the "Qualified Intermediary" industry, having successfully completed over 90,000 IRC 1031 tax deferred exchanges.
Working with API, Fred Prescott gives investors secure access to the full power of exchanges, turning goals for financial growth and security into a very rewarding reality.
|
WHAT IS A 1031 EXCHANGE? Thanks to IRC 1031, a properly structured exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. To understand the powerful protection an exchange offers, consider the following example: -An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another property.
-Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $520,000 new property. -If the same investor chose to exchange, however, he or she would be able to reinvest the entire $200,000 of equity in the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios. As the above example demonstrates, exchanges protect investors from capital gain taxes as well as facilitating significant portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is crucial to have a comprehensive knowledge of the exchange process and the IRC. For instance, an accurate understanding of the key term "like-kind" -- often mistakenly thought to mean the same exact types of property -- can reveal possibilities that might have been dismissed or overlooked. API is your resource to obtain accurate and thorough information about the entire exchange process.
|
Why Should I Consider a Tax-Deferred Exchange? There are various reasons why a tax-deferred exchange works in certain situations.Here are a few examples. If you own raw land that does not produce cash flow you could exchange it for income producing property, such as a duplex or a rental home.And unlike raw land, you can also get income tax deductions such as depreciation from your rentals. If you are thinking about selling and reinvesting into more income or investment property consider an exchange instead.If you sell and reinvest you will pay income taxes on the realized gain.If you do an exchange you will pay no taxes.This means more money as leverage for acquiring your next properties. Tax-deferred exchanges allow you to conserve your equity by not having to pay taxes on your net profits.With proper planning you can exchange properties throughout your lifetime, and neither you nor your heirs will ever pay income on the gains. |
REQUIREMENTS FOR FULL TAX DEFERRAL
A properly structured exchange is the transfer of property for property, thus deferring capital gain taxes. Any cash received, any reduction in mortgage or any other non-like-kind property received is considered "boot" and is taxable to the extent of the capital gain. To fully defer all capital gain taxes, an Exchanger must meet two requirements:
1. REINVEST ALL EXCHANGE PROCEEDS - If an Exchanger does not reinvest all exchange proceeds from the sale of the relinquished property, the balance received is considered "cash boot," and gain may be recognized on that amount.
2. ACQUIRE PROPERTY WITH THE SAME OR GREATER DEBT - If an Exchanger does not acquire a replacement property with an equal or greater amount of debt, he or she is relieved of a debt obligation, which is considered "mortgage boot." The IRS considers this reduction in debt a benefit to the Exchanger; therefore, it is taxable, unless it is offset by adding equivalent cash to the replacement property purchase.
CLICK HERE for examples
Asset Preservation has provided additional information on a
wide variety of exchange issues. Click on the appropriate
heading to learn more about each topic below:
·EXCHANGE BASICS
·EXCHANGE REQUIREMENTS
·EXCHANGE TYPES
Information compliments of
API Exchange, Inc.
www.apiexchange.com
