 |
GITDEC | What is a 1031 exchange? What are the benefits of a 1031? |
 |
Q and A: FAQ's Glossary 1031 Exchange Basics: How and Why 1031: 1031 Documents: Samples: Corporate Information: Ask us about 1031 Company Information Webmaster |
|
|
|
A tax-deferred exchange is a transaction involving the transfer of one piece of investment or income property (either real property or personal / business property) and the receipt of a replacement property which will be used as income or investment property.
When certain criteria are met, as defined in Internal Revenue Code Section 1031, the taxes on any capital gain realized from the sale of the relinquished property are deferred. The transaction is basically little different from an ordinary sale and purchase of property, except that certain documentation must be present to show that the transfers are intended to be part of an exchange and not a sale. So basically sales are taxable, exchanges are not. Why should an investor perform a 1031 exchange? The investor who intends to continue to participate in the investment market, either real property or personal / business property, or who desires to exchange 100% of his or her equity from the relinquished property into the replacement property, is the ideal candidate for an exchange. To do otherwise would mean paying up to 30% in taxes (combined Federal & some States at the top rate) and having only 70% of hard-earned equity with which to purchase the next investment property. The following diagram illustrates the financial justification of exchanging versus selling:
|
|
<<previous next >> |