Property Trades—Does The IRS Want You To Know About This?

Property Trades—Does The IRS Want You To Know About This?

Avoiding paying taxes is legal, if you do exactly what the IRS tells you to do. Don’t believe me? When it comes to real estate, doing what is called a 1031 tax-deferred exchange is a little-known investment strategy to the general public but is standard fare in an experienced investor's toolbox. Real long-term wealth in real estate can be accomplished without ever paying any capital gains taxes through the use of totally legal exchange techniques.

This strategy isn't new, but it is enjoying a significant resurgence in popularity now because many investors believe that real estate values have peaked in many markets. They want to lock in their gains and shift into other holdings without having to make a big payment to Uncle Sam.

The IRS tax code rules regarding 1031 exchanges apply to any type of property, including land, homes, apartments, commercial property and even leasehold property. Investors are also motivated to exchange for at least one of two other reasons.
First, they want to adjust their investment portfolio by moving from one property location to another. This can be particularly appealing if one is swapping out a property in a down market to another investment in a more attractive market. This can involve an exchange from one property, for example in the stagnant California market, into a more appealing North Carolina investment.
Second, they may wish to diversify the type of real estate they own. For example, instead of holding just rental properties, they may want to swap some of their real estate portfolio into office buildings. The ability to be fluid in one’s property investments cannot be overstated. The 1031 solution makes this possible without the penalty of federal taxes.
Property exchanges are not your typical transaction, far from it. Section 1031 of the tax code specifically requires that one property must be exchanged for another property, rather than sold for cash. The exchange is what separates a Section 1031 tax-deferred transaction from a traditional sale and purchase of a property.
Originally, the 1031 tool was intended to cover barters, such as trading a horse for a horse, involving no cash outlay. This type of exchange was subsequently translated over into the real estate field. As the decades passed and the business of selling and buying real estate became more complicated, the original concept of a like-kind real estate barter ultimately receded in use.
In the early 1990s, buyers and sellers of real estate were significantly aided when the federal government formally clarified many aspects of this code section. After these clarifications were formalized, a much wider use of 1031 exchanges resulted, not insignificantly, by a small group of “in the know” investors.
To defer all of the capital gains tax, the value of the replacement property must be equal to or greater than the original property and all of the equity within the sale proceeds must be reinvested. Another key rule is that the exchange process must be properly structured. This is where the role of companies such companies as Sun1031 is vital. “You have to get the structure right,” explains Antestenis.
A 1031 exchange is a simple concept for people to understand and use as a means for creating long-term wealth. With it, there is less tax to pay and more money to be kept for reinvestment into more valuable property. It is one of the last great tax breaks.
Now comes the hard part…Finding the correct replacement property. www.Sun1031.com may just be the right place to start. Sun1031 LLC has a company trademark that reads “Always available replacement property”. Sun1031 has had a real estate portfolio that has dominated the commercial industry not only in quality but in cash on cash returns… all set up for people doing a 1031 exchange. With investments ranging from $50,000 to multi-millions, Sun1031 is fast becoming the number one resource in the nation for people looking for 1031 exchange replacement property.
There are a lot a pleaces out there to look but you can expect helpful guidance from firms like Sun1031 who can save you a lot of problems if you’re a beginning investor or even an old pro.

Steve Blom
Senior Writer
Press Direct International

Robert Cefail is a founding partner of In Touch Media Group, a marketing firm specializing in online media.