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 Joseph DiMaggio on December 13, 2008 at 12:00 AM

About Joseph DiMaggio
Joseph DiMaggio is affliated with Mark 1 Real Estate, which is located in Rome, NY. For further assistance please use the contact information located on the right.

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Local Information for Rome, NY

Latitude: 43.219469 -- Longitude: -75.46333

ZIP Codes for Rome, New York	13440 13441 13442 13449
Area Code for Rome, New York	315
Time zone for Rome, New York	EST

Other Area Cities: Rome, NY North Bay Shore, NY

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Rome is a city in Oneida County, New York, United States. The population was 34,950 at the 2000 census. It is in New York's 24th Congressional District. The city is named after Rome, Italy. It is sometimes nicknamed "The Copper City" on account of the brass and copper works founded by Paul Revere in 1801. The City of Rome is in the south-central part of the county. The Rome Sand Plains is a 15,000-acre inland pine barrens within the city, that consists of a mosaic of high sand dunes and low peat bogs, mixed northern hardwood forests, meadows and wetlands. It is one of only a handful of inland pine barrens remaining in the United States. -- Source: Wikipedia.com

New York 2000 Census Population Profile Map

	Rome	New York	United States
Population	34,950	18,976,457	281,421,906
Median age	38.2	35.9	35.3
Median age for Male	36.1	34.5	34
Median age for Female	41	37.2	36.5
Households	13,653	7,056,860	105,480,101
Household population	31,452	18,395,996	273,643,273
Average household size	2.3	2.61	2.59
Families	8,332	4,639,387	71,787,347
Average family size	2.93	3.22	3.14
Housing units	16,272	7,679,307	115,904,641
Occupied units	13,653	7,056,860	105,480,101
Vacant units	2,619	622,447	10,424,540

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Section 1031 Exchanges for Real Estate Investors

Local Information for Rome, NY

Latitude: 43.219469 -- Longitude: -75.46333

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