1031 Exchange - Process and Benefits for Real Estate - YouTube

www:http//homesearchincary.com

Hello, I'm Don Johnson with Keller Williams real estate in Cary, North Carolina and it's

a pleasure and privilege to be here with you on Top Triangle real estate's video blog.

Today, I will be discussing 1031 Exchanges with you today.

How would you like to avoid paying capital gains tax on an qualifying property or asset

that you plan to sell?

What's even better, if done correctly, you can use the 1031 exchange process to avoid

capital gains tax, altogether!

Also known as a Starker exchange or a tax-deferred exchange, a 1031 exchange offers valuable

tax benefits to the savvy real estate investor.

Stay tuned and I will illustrate the basic mechanics of a 1031 exchange.

And, show you a sample of this awesome wealth building strategy.

Please consult your tax advisor and attorney for specific details and qualifications before

attempting a 1031 exchange.

Let's begin by reviewing the mechanics of a 1031 exchange and how Top Triangle real

estate professionals can help you realize a successful exchange.

Let's say, for example, you have a qualified property and you want to exchange out of that

property or asset.

A qualified property is defined as a property that is held for productive use in a trade

or business or is used as an investment).

For example, an apartment building, duplex, or rental house.

A qualified property is not a personal residence.

This first part of the exchange will involve a seller or a company, a qualified intermediary

or QI, and a buyer.

- The qualified intermediary must meet certain IRS rules.

For example, the QI can't be a relative.

Next, an exchange agreement drafted by you identifying your intent to do an exchange

and is documented very clearly and sent to the QI.

Next, your property that you want to relinquish or exchange out of is marketed by Top Triangle

real estate and sold to another investor or party.

Proceeds from the sell of the relinquished property are sent to the QI who holds those

funds until you decide to purchase a replacement property.

All the proceeds must be used to buy the replacement asset which must be a like kind property,

in this case, an investment property.

For example a single investment property can be exchanged for an office building or multiple

properties as in this case.

And here is the second part of the transaction:

- At this point, when the property sale closes, the IRS clock begins ticking.

You will have 45 days to identify a replacement property or properties and you will have 180

days to purchase those properties.

Note it is not 45 days plus an additional 180 days; both time periods begin on the day

you sell the original property.

Next, the replacement property or properties you have identified are recorded with the

qualified intermediary.

The final step is buying the replacement property with the proceeds from the sale of your original

property plus any additional funds, if necessary.

At this point, the QI will transfer the funds to the seller.

You will receive the replacement properties and the taxes on your sell will be deferred.

The IRS allows you to continue this process indefinitely until you die.

At which point, the assets or investment properties will transfer to your heirs, tax-free at a

stepped up basis.

In essence, every 1031 exchange, if done properly, can be TAX FREE transaction!

However, if you elect to cash out along the way, your gains will be taxed.

We at Top Triangle real estate offer (2) important services that ensure you will have a successful

transaction.

First, we have a large database of buyers and sellers for your current property and

replacement property, respectively.

And second, Top Triangle Real Estate can help you identify replacement properties PRIOR

to the initiation of the exchange process ensure you meet the 180 day time frame required

by the IRS.

Here is a simple illustration of the potential tax savings in a 1031 exchange scenario:

Let's say you have an investment property and you want to sell that property.

And, you are able to sell the property for $500,000.

Let's say the basis on the property is $200,000 so your gain once you sell that property would

be $300,000.

Outside of a 1031 exchange you may realize a taxable rate of 20%.

Of course, your tax advisor can give specifics on your tax rate.

But, let's assume 20%.

You would owe the IRS $60,000 on that transaction, netting you $240,000 in proceeds.

In a 1031 scenario, your tax on that gain would be ZERO, so your available to reinvest

would be $300,000, of course $60,000 more than a non-1031 exchange scenario.

I hope you found this information regarding 1031 exchanges helpful.

Please call us a Top Triangle Real Estate if you have any questions regarding 1031 exchanges

or any other real estate needs.

Thank you for joining Top Triangle real estate on our blog today and sharing your time, where

performance - where top performance matters!