|
Do You Know You Can Skip Paying The Capital Gains Tax? |
By:
Jacques Coquerel |
|
|
Do You Know You Can Skip Paying The Capital Gains Tax?
Jacques Coquerel
After you've scoured every real estate reference material and attended seminars, you might have heard about 1031 Tax Deferred Exchange. This is a mandated privilege to defer your capital gains tax payment. But do you know this privilege enough to take advantage of it when you're planning to sell a property?
The Internal Revenue Code Section 1031 grants a right to all investors to defer payment of capital gains tax after several provisions have been met. The most important provision under this section is that all gains must go the purchase of "the same" property. You can't avail for 10310 exchange if you sold a house and purchase a car.
There is also a specified time frame from the date of sale for you to find a suitable property to buy in exchange for the one you sold. You have exactly 120 days from the day you sold your previous property to put a new property under contract for acquisition. You also need to make the actual purchase - exchange of ownership - for that property within specified amount of time also. And buying a property for your own use from the gains is not counted.
You need a lawyer or the service of a 1031 service company to set up everything for you. They will serve as the intermediary or the facilitator for the whole process. Your intermediary will take the property gain from you, buy the exchange property for you, and transfer the ownership to you as soon is it has been paid. This arrangement is provided by the IRS and must be followed at all times.
You must also remember to be explicit in your contract from the very beginning. From your contract to sell to your contract to purchase, you must state clearly that you want to evoke your right to avail for 1031 tax deferred exchange. Preparing the written papers is part and partial job of your lawyer or your intermediary.
There are basically five kinds of 1031 exchanges; the simultaneous, delayed, build-to-suit, reverse, and personal property. The most common among all these exchanges is the delayed 1031 exchange. This is the kind of 1031 exchange being discussed above where in a time delay is allowed from the day of sale to the day of purchase.
The number one benefit of applying for 1031 exchange is that you could postpone your capital gains tax payment. You'll only pay until you make the final sale of your property or if you can't find a property to exchange within the time allowed - this is highly unlikely. In the times when investors need to cut costs as much as possible, availing for a 1031 exchange is really a big help.
This privilege is provided by law under the tax code section 1031 and all real estate investors are eligible to apply. No matter if you're a small company or a starting individual, you can always be granted with the privilege provided that all the requirements are met.
About the author: Jack Cockrel is a real estate investor in Atlanta, GA. He has transacted more than 750 properties since 1996. For http://www.getquantumleap.com/) Real Estate Investing Tips get his free course http://www.getquantumleap.com/) Real Estate Investing Free Course.
|
|
Article Source: http://www.statssheet.com/articles/article71490.html |
|
|
|
|
|
