Understanding The Benefits Of The 1031 Exchange     Defer Capital Gain You are getting ready to sell a piece of investment real estate. And now it’s time to pay tax on the capital gains. But before you pull out your checkbook to pay the capital gains and state tax, consider a 1031 Exchange.   Section 1031 of the Internal Revenue Code is one of the last great tax shelters. A 1031 Exchange allows you to defer payment of taxes due. As the name suggest, the 1031 Exchange works through the exchange of property. You must purchase property that is like-kind within 180 days of the sale of the original property in order to defer the payment of capital gains taxes. As long as you are willing to trade up in value and debt, your taxes will be completely deferred. If you cannot purchase property of higher value, there is still a good possibility that some of your taxes can be deferred. An exchange must follow the rules of the IRS to the letter, and many details must be considered. Always contact your tax advisor when attempting a 1031 Exchange. 1031 Tax Free Strategies LLC is one of the many companies that can guide you through the 1031 Exchange.   The Investor’s Advantage.  A 1031 Exchange allows the wise investor to build wealth through reinvestment. Instead of using profits to pay capital gains taxes, you can retain control of your money in order to:   Increase Cash Flow Purchase new or different property Diversify properties Consolidate various properties   For instance, you might sell raw land, which is not yet producing income, to buy an established commercial building. Or you can sell a business aircraft for a newer model. Capital gains taxes can be as high as 25%. With the 1031 Exchange, deferring these taxes in order to reinvest, is often a profitable choice.   Real Estate Exchanges Real estate is the most common type of like-kind property purchased and sold in a 1031 Exchange. Exchanged properties must be business or investment properties. As a general rule, all business real estate in the U.S. is like-kind property. Personal residences do not qualify for tax deferral through a 1031 Exchange, and foreign real estate is not like-kind.   A Few Important Rules 1. You must notify the buyer of your original property that you are performing a Section 1031   Exchange. 2. The Exchanger must use a qualified Intermediary. 3. The Exchanger must identify the replacement property within 45 days of the sale of the original property. 4. The Exchanger must purchase their replacement property within 180 days of selling the original property. 5. The names on the title of the old property must be identical to the names on the title of the new property.   Examples Of Like Kind Property (All Real Estate Applies)   Exchange office building with vacant land Exchange Duplex with Single Family Rental Exchange Motel/Hotel with apartments Exchange Condominium with a 30 year lease   The Qualified Intermediary The Qualified Intermediary (QI), required by law in a 1031 Exchange, plays an important role. The QI must prepare the exchange agreement and coordinate the exchange with both closing agents. After the sale of your original property, and before the closing on your new property, you must leave money in escrow held by the QI. Your QI should be experienced, fully bonded and should allow you to earn interest on the funds held.   1031 Reverse Exchange Different than a 1031 Exchange, a Reverse Exchange is used if you identify a property you want to purchase before you have sold your current property. In 2000, the IRS released Revenue Procedure 2000-37, which officially approves and gives guidance for Reverse Exchanges. The Exchange also allows you to defer tax payment; however, the methods for completing a Reverse Exchange differ from a 1031 Exchange.   For more information on 1031 Exchanges and 1031 Reverse Exchanges, you should always contact your tax advisor. You may choose to contact 1031 Tax Free Strategies, LLC. They work with real estate professionals and individual investors in order to help them successfully complete a 1031 Exchange. You may contact them at 866-839-0429.   Or contact The 1031 Exchange Experts nationwide at 866-694-0204.