Ro Troia

Don’t Let A 1031 Exchange Frighten You.

 

It’s not scary if you let them work FOR you.  What exactly is a 1031 exchange?  In Boulder Colorado and other parts of Colorado, it is a lawful transaction in which an asset is sold and the proceeds of the real estate sale are reinvested in a similar asset.  Because the transaction exists between two like assets, then no gain or loss is recognized, allowing the deferment of capital gains taxes that would otherwise have been due on the first sale.   There are several important factors to consider when partaking in 1031 like-kind exchanges.  This is a brief overview that a seller/exchanger needs to know in order to pursue this further.  Don’t be scared, all you need is a little help to get you going in the right direction.

 

 

This one is important: There are mandatory IRS 1031 exchange guidelines to follow.  Section 1031 of the IRS code allows the seller/exchanger to defer the applicable capital gains taxes on the sale of their property by exchanging it for “like-kind” property of equal or greater value.  The exchanger has 45 days from the close of escrow to identify his/her replacement property and has 180 days from the close of escrow to close on the identified property.  The IRS does not allow extensions.

Use a qualified, reputable intermediary whom the proceeds can be directed.  The seller/exchanger may not take constructive receipt of their sales proceeds or taxes will be triggered.  The qualified intermediary (QI) will then be responsible to acquire the identified on behalf of the seller.  Please find a QI who is certified, licensed, and bonded!  In Boulder Colorado, one resource for 1031 exchanges is Mid-Exchange. 

Implications to ponder….What is the seller’s tax liability including federal and state capital gains taxes?….Are there any depreciation recaptures taxes if applicable?….What are the exchanger’s liquid assets outside of this real estate transaction and other real estate holdings?….Does the seller/exchanger have a huge tax liability and plenty of liquid assets?  If so, then a 1031 like-kind exchange can be a very good thing.

Find properties that are suitable replacements.  In this case – similar.  Replacement properties can include real estate other than your primary residence, second home (although there are some exceptions) partnerships and inventory property.  Apartment buildings, duplexes, raw land, commercial, single family rentals are all included. 

Watch out for fraud! 1031 deception is an unwanted trend happening in real estate.  If you’re aware of the possibilities of fraud, then you have a better chance of it not happening to you.  Another important reason to question your qualified intermediary and know where your money is going.  Be certain they are depositing funds only in money-market accounts that invest in government-backed securities.  Like Peter Wunsch, who started 1031vigilante.com and Rocksolid 1031 which is a exchange company that puts investors first by protecting the investor’s money as if it were their own.

It’s really easier than people initially believe.  Take it one step at a time.  With both, your Realtor and your 1031 exchange professional, your transaction can be a smooth yet strategic investment success!

Tags: Tags: 1031 exchange, bouler colorado real estate, exchanger, investing, IRS, realtor, seller

This entry was posted on Sunday, September 21st, 2008 at 2:22 pm and is filed under Selling Thoughts, Trends. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. kristine smith said at January 8th, 2009 at 11:55 pm

   What does a buyer have to watch out for with this kind of transaction?? Any risks to them??

2. Julie Johnson said at January 9th, 2009 at 10:02 am

   http://www.1031exchangemadesimple.com/ is a very informative website about this procedure. The biggest risks is this is an unregulated process and if it’s done wrong, that is a problem. Use a qualified intermediary and knowledgeable real estate agent.

3. 8736 said at March 28th, 2009 at 12:04 pm

   Beware of SUN 1031 (of AZ) AND CUSA (of GA).

   SUN1031 inflated sales prices by buying property then flipping them, usually at 100%+ profits.

   they also got owners into onerous contracts with CUSA causing a quick collapse of returns AND lost value of the properties.

   >> some do’s & don’ts:
   > do NOT give a Power of Attorney
   > know who sold the property to the company selling YOU the property. if they will also be your tenant, don’t buy that property.
   > know what kind of charges your Property Manager will charge YOU AND TENANTS! high fees & CAM charges chase tenants away!
   > have leases in place that are for 5 years plus. shy away from short leases.
   > get an appraisal. you WON’T get one afterwards!
   > remember, there are NO GUARANTEES! so don’t believe them.
   > be careful of a master lease.
   > visit the property & talk to tenants.

4. Bruce said at May 15th, 2009 at 6:08 pm

   Where does your information from Sun 1031 come from? (I agree with it, by the way.)

5. Julie Johnson said at May 16th, 2009 at 8:34 am

   Hi Bruce, The information about Sun 1031 was a comment posted by an unknown visitor to our website. Sounds like first-hand information to me – someone speaking from experience.

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