Looking For 30a Investment Properties With A 1031 Like-Kind Exchange?
The Fall is the most beautiful time of the year at the Beach. It is also the time where many of us begin thinking about year end tax planning. Maybe it’s the right time to consider selling one or more of your investment properties and purchasing a property on 30a or elsewhere on the Emerald Coast? If that scenario fits your long-term business plan, then you should be aware of the benefits created by the IRS 1031 like-kind exchange. If a Real Estate investor sells appreciated property they pay tax. However, property that qualifies for preferential tax treatment under Internal Revenue Code Section 1031 is treated quite differently. IRC 1031 states:
“No gain or loss shall be recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of “like-kind.”
Simply put, an investor using IRC Section 1031 can exchange raw land for a rental home, an apartment complex for a shopping center, or rental houses for an office building. The use of the property is a key factor in determining the tax treatment.
Here are a few important points to remember regarding the 1031 Exchange. In order to qualify with the IRS guidelines:
- The replacement property(s) must be of equal or greater value than the one being exchanged.
- One has 45 days from the date that the original investment property(s) was closed to “Identify” the replacement property(s). A Qualified Intermediary will provide an identification form to list all pertinent information about the replacement properties, which will be kept on file. This Identification process encourages the use of a Qualified Intermediary, deeming it a “safe harbor”. A “safe harbor” is a term, which defines acceptable guidelines so a transaction will be regarded defensible. With a few exceptions, the following are considered disqualified intermediaries: a close family member or a controlled corporation, partnership, or trust; persons considered to be agents of the investor such as their employee, attorney, accountant, investment banker or broker, or their real estate agent or broker.
- The Replacement property purchase must be closed within 180 days from the date the original property being exchanged was closed.
As always, I strongly advise anyone considering utilizing a 1031 Exchange to discuss the matter with their tax advisor and/or attorney!
In closing, Linda and I would be honored to earn your business. We encourage you to begin the “Identification” process prior to the closing of your property being exchanged. We recommend that at least 3 replacement properties be identified early on. This will give you several options from which to choose should problems arise. We can also assist you with the engagement of a Qualified Intermediary to assist in finalizing your exchange. Please contact us for more information.
Homes on 30a