Section 1031 Exchanges for Real Estate Investors

When a real estate investor sells real estate, a capital gains tax is recognized, along with a tax on deprecation recapture. The regular capital gains tax, deprecation recapture, and any applicable state tax can often result in a tax liability in the 20% to 25% range for the sale of real estate. (If the real estate has been held for less than 12 months, all of the gain will be taxed at much higher short term capital gains rates.)

A Section 1031 exchange, named for the applicable section of the Internal Revenue Code (also known as a Starker Exchange, Tax Free Exchange, or Like-Kind exchange), allows an investor to defer all tax on the sale of real estate if the real estate is replaced with other real estate pursuant to a detailed set of rules.

The replacement property must be identified within 45 days of the sale of the relinquished property. (1) The replacement property must be purchased within 180 days of the sale of the relinquished property. (2) The replacement property must have a purchase price at least as great as the relinquished property, otherwise some tax will be recognized. (3) All of the cash proceeds from the sale of the relinquished property, less any debt repayment and expenses of the sale, must be reinvested in the replacement property. (4) All of the cash proceeds from the sale of the relinquished property must be held by a Qualified Intermediary, which is a person or institution with whom the investor has not recently conducted other business. The investor must not have any access to the cash while it is being held. (5) The titleholder of the relinquished property must be the same as the purchaser of the replacement property. (6) The sale or purchase of a partnership interest does not qualify for a Section 1031 exchange, except under a few limited set of circumstances. (7) The relinquished property cannot have been classified as inventory, such as condominiums built by the investor, or lots in a subdivision that was subdivided by the investor.

If these rules are followed, real estate investors can sell current real estate holdings and replace them with other properties. A Section 1031 transaction is an excellent way for a retiring real estate investor to convert actively managed properties into passive properties, such as triple net leased properties.

Posted by Karen Lewis on December 13, 2008 at 12:00 AM

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Karen Lewis is affliated with Moscow Realty, which is located in Moscow, ID. For further assistance please use the contact information located on the right.

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Local Information for Moscow, ID

Latitude: 46.731745 -- Longitude: -116.997188

ZIP Codes for Moscow, Idaho	83843 83844
Area Code for Moscow, Idaho	208
Time zone for Moscow, Idaho	PST

Other Area Cities: Pullman, WA Moscow, ID

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Moscow (pronounced Moss-co) is the county seat of Latah CountyGR6 in northern Idaho, along the Washington/Idaho border. The city is the home of the University of Idaho, the land grant institution and primary research university for the state. Eight miles to the west is Pullman and Washington State University. While the University of Idaho is the dominant employer in Moscow, the city also serves as a agricultural and commercial hub for the Palouse region. As of the 2000 census, the city has a total population of 21,291. Moscow is the birthplace of Carol Ryrie Brink and singer Josh Ritter. Along with the rest of northern Idaho, Moscow resides in the Pacific Time Zone. Moscow is the principal city of the Moscow, ID Micropolitan Statistical Area, which includes Latah County. -- Source: Wikipedia.com

Idaho 2000 Census Population Profile Map

	Moscow	Idaho	United States
Population	21,291	1,293,953	281,421,906
Median age	24.4	33.2	35.3
Median age for Male	24.1	32.2	34
Median age for Female	24.9	34.2	36.5
Households	7,724	469,645	105,480,101
Household population	17,377	1,262,457	273,643,273
Average household size	2.25	2.69	2.59
Families	3,868	335,588	71,787,347
Average family size	2.87	3.17	3.14
Housing units	8,029	527,824	115,904,641
Occupied units	7,724	469,645	105,480,101
Vacant units	305	58,179	10,424,540

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Section 1031 Exchanges for Real Estate Investors

Local Information for Moscow, ID

Latitude: 46.731745 -- Longitude: -116.997188

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