Real Estate investors in all areas across the country are beginning to take advantage of this time in our economy where the price bubble is higher than ever (seller’s market). This means it is a great time to exchange properties in other states, TAX FREE.
Pro Tip: If you can sell a property during the seller’s market & purchase a property during the next buyer’s market, you are sure to make a killing on your next exchange.
Before doing a 1031 tax free exchange, make sure that you are following these 7 simple & clear rules:
- Like-Kind Property: The property being sold and being acquired must be of the same nature. For example: A single family rental property for a commercial office building.
- Investment or Business Property: 1031 tax free exchanges are only applicable for investment or business property, not personal property.
- Greater or Equal Value: The IRS requires the net market value & equity of the purchased property to be equal to or greater than the sold property.
- Must Not Receive “Boot:” Any boot received is taxable to the extent of gain. Boot is any non like-kind property that is taxable.
- Same Tax Payer: The tax return AND the name appearing on the property sold must be the same as the tax return & the title holder on the new property.
- 45 Day Identification Window: The owner has 45 days post-closing of the first property, to identify up to 3 potential properties of like-kind.
- 180 Day Purchase Window: All new properties must be purchased within 6 months. The only exception to this is if the property owner asks for an extension.
This blog is just a little kick starter to get the gears moving! Make sure you get assistance from a tax or legal advisor before setting your exchange into motion.
Thanks for reading! Have a great week.
Dallas Moreno / Marketing Manager
