Savings on Capital Gains?

Q: I am thinking of selling a condominium that I have used as rental property and have heard that I can save on capital gains taxes with something called a 1031 exchange. What can you tell me about this?

A: 1031 exchange may also be known as a “like kind” exchange or tax deferred exchange. Section 1031 of the IRS code allows you to defer capital gains tax on a property that you are selling by exchanging that piece of property for another one that is of equal or greater value. Both properties must be used in trade or business or held as investments. In essence, the 1031 exchange allows you to put your profits to work for you.

The first and most important step is to consult with your tax, financial and legal advisors to determine if a tax deferred exchange is appropriate for your circumstances. Secondly, during the contract process of selling your property, you would disclose your intentions and ask for the Buyer’s cooperation in the process. There is no cost or disruption to the Buyer. You would choose a Facilitator, a third party who would coordinate the transfer. All deposits and proceeds for the transaction will be held by an Escrow Company. These monies are never in your possession. Once the property transfers, you have 45 days from that date to identify a new property to purchase, which then must close within 180 days of the transfer of your first property.

The Team at Atlantic Bay Sotheby’s International Realty has assisted many clients with Like-Kind Exchanges. Make us your first call, and we will put you in contact with all of the necessary experts to guide you through the process.