1031 Tax Deferred Exchange


Dan and Lucy Wilson Realty is a CERTIFIED EXCHANGE ADVISOR (CEA) which is the distinquished designation offered through the AMERICAN INSTITUTE OF REAL ESTATE EXCHANGORS and a member of R. J. GULLO & CO., INC., which is America's #1 Qualified Intermediary Network For Real Estate Exchanges.

Key Benefits

  • Pay no capital gains tax when you sell.
  • Use 100% of your equity to purchase other real estate.
  • Leverage a greater value of real estate by using money you would have otherwise paid as capital gains tax. 

Requirements

  • You must go back into real estate.
  • The replacement property must be of equal or greater value than the disposal property.  However, if the replacement property is not of greater value you can still do an exchange.  You would simply have to pay capital gains tax on the (cash boot) portion of your gain that is greater than the replacement property value. 
  • You must use a Qualified Intermediary to handle the exchange.
  • You can not take actual receipt of the sale proceeds. Proceeds must past through the Qualified Intermediary.

Example of an exchange versus a typical sale:

                                                                     Property Sale            Property Exchange

Basis at acquisition 100,000 100,000
add capital improvements    
Subtract Cost Recovery (depreciation) 90,000  
Equals your adjusted basis 10,000  
     
Selling Price 125,000 125,000
Minus cost of sale (legal etc)    
Minus adjusted basis 10,000 10,000
Equals your Gain (Profit) 115,000 115,000
Minus your depreciation recapture 90,000  
X Tax rate  (recapture rate 25% + 8%)       .33  
Equals  Tax Liability (what you owe) 29700 tax now due for recapture  
- Suspended Losses    
Equals CAPITAL GAIN 25,000 sell price - gain(profit) 25,000
X Tax rate (20% + 8%)       .28   
= Tax Liability on gain 7,000 tax now due on gain  
Total tax liability (you pay this!) 36,700  (29700+7000)        0.00
     
Selling Price 125,000 125,000
Less Mortgage bal (hypothetical) 50,000 50,000
= Gross Proceeds 75,000 75,000
Minus Total tax liability 36700 0
= Net Proceeds after taxes 38300 75000

In this example you could walk away from the sale with an addition 36,700.00 to apply to your next purchase!! This is absolutely legal and recognized by the IRS.  It is specifically addressed under Sec.1031 of the Internal Revenue Code.  More information is available through IRS Publication 17.

Although it appears complicated, it really isn't.  There is very little for the seller to do.  Simply state that the sale is going to be an exchange and the Qualified Intermediary does the rest! 

Call or E-mail for more information or visit Russell Gullo

 

 

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Youngstown, NY 14174