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 DeLynn Weishaar on December 13, 2008 at 12:00 AM

About DeLynn Weishaar
DeLynn Weishaar is affliated with Brokers "12" Inc., which is located in Minot, ND. For further assistance please use the contact information located on the right.

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Local Information for Minot, ND

Latitude: 48.23319 -- Longitude: -101.292229

ZIP Codes for Minot, North Dakota	58701 58702 58703 58704 58705 58707 58768
Area Code for Minot, North Dakota	701
Time zone for Minot, North Dakota	CST

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Minot came into existence in 1886, when Jim Hill's Great Northern Railroad ended its push through the state for the winter, after having trouble constructing a trestle across Gassman Coulee. A tent town sprung up over night, as if by "magic", thus the city came to be known as the Magic City, and in the next occuring 5 months, the population increased to over 5,000 residents, further adding to the nicknames validity.More specific named divisions tend to be upscale residential areas. These include Bel-Air, which is the area north of 4th Avenue NW and west of 16th Street NW and includes Bel-Air Elementary School, Eastwood Park, which is southwest of Roosevelt Park and north of Burdick Expressway along 7th and 8th Streets SE, and Terracita Vallejo which is actually outside of the city, west of the US 83 bypass but north of US 2/52.Nearly 40% of the residents of Minot are of Scandinavian ancestry, and every October since 1977, Minot has been the host to the Norsk Høstfest. -- Source: Wikipedia.com

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Section 1031 Exchanges for Real Estate Investors

Local Information for Minot, ND

Latitude: 48.23319 -- Longitude: -101.292229

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