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In recent years, particularly in rising markets, many real estate
investors have found it convenient or necessary when liquidating
an investment interest to use Internal Revenue Code Section 1031
like-kind exchanges to shelter capital gains and avoid or defer depreciation
recapture.
Scott N. Alperin, an experienced tax deferred exchange attorney
in Virginia,
is available to you for advice about how this reinvestment strategy
can work for you. Because the 1031 exchange deadlines can be tight,
contact Scott as soon as you plan to sell your property to discuss
your like-kind exchange questions and tax deferred benefits.
Alperin Law also provides Qualified Intermediary services for
property exchanges pursuant to Internal Revenue Code Section 1031.
In this capacity, we prepare and distribute the documents necessary
to complete the exchange transaction, including closing instructions
to the closing attorneys handling the sale and purchase.
Because receipt of any of the proceeds by the Exchange or from the
sale of the property would result in those proceeds being taxable,
Alperin Law holds the proceeds from the sale in a separate exchange
account until they are needed for the purchase of replacement property.
{
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to top } Anyone who is thinking about selling a business or investment
property should consider a 1031 Exchange, which allows you to avoid
the capital gains tax that would otherwise be levied in an outright
sale. Section 1031 tax deferred exchanges are becoming increasingly
popular among Virginia property owners. There are many reasons to consider a 1031 Exchange, to
include:
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Equity Preservation A properly structured exchange can give real estate owners a 100%
deferral of both Federal and State capital gain taxes. This
essentially equals an interest-free, no-term loan on taxes due until
the property is sold for cash. Often the capital gain taxes are
deferred indefinitely because many property owners continue to
exchange from one property to the next, increasing the value of
their real estate investments with each exchange.
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Leverage Many property owners exchange from a property where they have a
high equity position, into more valuable property. The larger
property can generate more cash flow and provide greater
depreciation benefits, and a better overall return.
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Diversification Section 1031 Exchanges offer a great opportunity to diversify
assets, whether by diversifying into another geographic region
or simply from one property type to another.
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Administrative Relief Some types of property require hands-on management, and that type of responsibility can become
burdensome. Exchanging into a property with less maintenance or
ongoing management can make good economic sense, especially in
the context of a tax-free exchange.
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Estate Planning Sometimes a number of family members inherit one large property
and disagree about what to do with it. Some may want to continue
to hold the property, while others want to sell for quick cash.
By exchanging from one large property into several smaller
properties, clients can designate that, after their death, their
heirs will each receive a different property, which they can
choose to either hold or sell.
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Personal service is what sets us apart from other law firms. We
are always available to assist our clients with any questions
about the exchange process. In addition to the necessary exchange
documentation, we provide written notification of designation
and exchange deadlines and oral reminders to make sure time requirements
are met.
We enjoy working with people who are new to investing or transferring
in or out of the area and would like a better understanding of
how to benefit from a Tax Deferred Exchange.
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- Sole Owner Exchanges
- Tenants in Common Exchanges
- Reverse Exchanges
- Replacement Properties
- Qualified Intermediaries
- LLC Formation for Tenants in Common
- Due Diligence
- Exchange Closing
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Internal Revenue Code Section 1031 allows individuals and entities
to “exchange” investment property or other property
that is held for productive use in a business or trade but not
primarily for sale. The exchange is ordinarily accomplished by
the sale of the investment or other property to one third party
and the purchase of replacement property from another third party
within a designated time period.
Under IRC Section 1031, capital gains from the sale of investment
or income bearing property are deferred so long as the Exchangor
does not receive cash or other benefits from the sale. To satisfy
the no cash or benefits requirement, the IRC Section 1031 allows
a Qualified Intermediary to receive the Exchangor’s interest
as the seller of the property (the proceeds) and the Exchangor’s
interest as the buyer of replacement property, thus becoming an
actual participant in the transaction.
To qualify for Section 1031 treatment of the gain from the sale
of your investment real estate, the proceeds of the sale of investment
property must be reinvested in a qualifying replacement property
within a limited period of time. An exchanger's failure to fully
satisfy the 1031 like-kind exchange requirements can ruin any intention
to shelter the proceeds of a prior sale from immediate tax liability.
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As of March 10, 2008, investors and second-home owners now benefit from a 1031 Exchange rules update by the IRS that provides a safe harbor for like-kind exchange of dwelling unit.
This new procedure provides a safe harbor under which the IRS will not challenge whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment for purposes of Section 1031 of the Internal Revenue Code.
Real Estate attorney Scott Alperin says, "The new rule demonstrates a relaxation of the long-standing notion that any real estate used for personal purposes could not also qualify as property held for 'investment' purposes under the tax deferred exchange guidelines. The procedure also provides a specific 'bright line' test for compliance with the safe harbor requirements." (Click here
for more on the new rules.)
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Alperin Law can advise you on all aspects of like-kind exchanges
so that you can avoid a taxable event by means of a timely and
fully qualifying exchange with sound investment values.
For a no-cost phone consultation, feel free to call us at (757) 490-3500 or fill out this form.
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