Property Exchange & Tax Benefits

Having helped several clients make 1031 like-kind property exchanges I am familiar with both their advantages and requirements, and I am pleased that more people are recognizing their potential!

"For years, one of the best-kept secrets in the Internal Revenue Code has been IRC Section 1031, the like-kind property exchange. But today, certified public accounts are beginning to see more clients taking advantage of the investment strategies the tax code allows.

The appeal of Section 1031 is the ability to sell property and then reinvest the proceeds in ownership of like-kind property while deferring the capital gains taxes. Business owners and investors can reap substantial benefits by deferring the large tax bills that usually accompany the purchase of business-related real estate, property or assets, including airplanes or other vehicles.

Basically, Section 1031 turns a standard sales transaction into an exchange for property that will be used in similar fashion for business, with the accompanying benefit of saving capital gains tax on the sale.

As with almost everything involving the IRS, following the rules is critical.

First, it is important to announce from the outset that the intention is to pursue a real estate or property transaction under Section 1031. There are strict deadlines, and reams of paperwork will accompany the deal. Most clients secure an intermediary – a CPA or attorney familiar with Section 1031 – in order to ensure that the deadlines and rules are met.

However, the tight deadlines can be a hindrance. Once the property is sold and funds transferred to the intermediary, the seller has 45 days to find the replacement property and 180 days to complete the deal. Depending on the state of the commercial real estate market, the deal may not close within the timeframe and the Section 1031 deferral may be lost."

For the full Charleston Regional Business Journal article: http://www.charlestonbusiness.com/pub/13_15/news/9907-1.html