Long Island Real Estate Law Firms, Markotsis & Lieberman P.C., Explain 3 Frequent Questions About The 1031 Exchange Rule
HICKSVILLE, N.Y., June 20, 2019 /PRNewswire/ -- In today's real estate market, the prices of properties have reached an all-time high. Due to this, real estate investors have worked to utilize a strategy known as the 1031 Exchange. This strategy originated from section 1031 of the IRS Code and allows an investor to "defer" paying capital gains taxes on an investment property when it is sold. This works as long as another "like-kind property" is purchased with the profit gained by the sale of the first property. To better understand this strategy, Long Island real estate law firms, Markotsis & Lieberman P.C., will explain the top 3 questions about the 1031 Exchange rule.
When is it the right time to use the 1031 Exchange strategy?
The 1031 Exchange strategy can only be used for investment and business properties. When these types of properties are for sale, the seller is responsible for the payment of the capital gains tax. If the investment property for sale is worth more at the time of the sale than its original purchase price, a 1031 Exchange can assist the seller in having a significant amount of money available to be used toward the purchase of another investment property.
What properties qualify for this exchange?
Properties held for productive use such as investment, trade, or business are eligible for the exchange of like-kind property under the 1031 Exchange. In order for an exchange to be considered like-kind, the investment type must be the same. For example, an investment property can be exchanged for another type of investment property or a single-family residence can be exchanged for a duplex or office building. However, the exchange cannot occur between partnership shares, stocks, bonds, certificates, or personal residences. If an investor exchanges multiple properties in quick succession, those properties may be considered stock in place of investment properties and would not qualify. Once a property is approved for the 1031 Exchange, the next step is to determine what the replacement property will be. It is important to remember that when choosing a replacement property, the like-kind rule will apply.
How much time is needed to complete the 1031 Exchange?
From the time the relinquished property has been closed, the investor has 45 days to nominate potential replacement properties and 180 days from the closing date to acquire the chosen replacement property. Under the 1031 Exchange rule, an investor should nominate three replacement properties by midnight on the 45th day and then obtain one or more of the properties within 180 days. If an exchange requires more than 3 replacement properties, it may be best for the investor to reach out to their 1031 facilitator for additional information on unique situations.
The 1031 Exchange rule may be helpful for investors and real estate professionals alike. However, given the complexities of an exchange, be sure to consult with a 1031 facilitator and an experienced attorney throughout the entire exchange process for the best outcome.
About Markotsis & Lieberman, P.C.:Markotsis & Lieberman, P.C. Real Estate Attorney is a general practice law firm. Practice areas include real estate, litigation (commercial and civil), business formations, agreements and transactions, and wills, trusts and estates. Our team of seasoned attorneys are here to guide you through every step of the legal process providing personalized attention to every client. When you're facing a complicated legal situation, our team of legal experts is there to fight for your rights.
SOURCE Markotsis & Lieberman, P.C.
Share this article