What is an IRC Section 1031 Exchange?
The sale of an investment property can trigger capital gains. This means an investor who has made money because a property appreciated in value could be required to pay a big portion of the gains to the Internal Revenue Service in the form of capital gains taxes.
An IRC section 1031 exchange, however, allows an investor to defer the recognition of the capital gains from the sale of an investment property. Capital losses may also be deferred. Deferring gains and losses postpones a requirement to pay capital gains taxes. An IRC section 1031 exchange is possible only under limited circumstances where the investment purchases another similar property. The steps involved can be complicated and it is important that you follow guidelines exactly in order to avoid an unexpected tax bill. An experienced Las Vegas real estate investment lawyer at Pintar Albiston LLP can provide assistance throughout your 1031 exchange. Call today to schedule a consultation and learn more.
What is an IRC Section 1031 Exchange?
An IRC section 1031 exchange gets its name from the section of the Internal Revenue Code that makes deferment of capital gains possible on some investments. In order to qualify for an IRC section 1031 exchange, you must have a property that is considered an investment property or that is used for productive purposes.
A primary residence that you live in would generally not be considered a property you can use in an IRC section 1031 exchange, but you can often exclude capital gains on the sale of your primary residence through other sections of the IRS code. Stocks, bonds and certain other kinds of investments are not eligible for a 1031 exchange. Personal properties can be part of an IRC section 1031 exchange, although these types of tax-deferrals are most often used for real estate.
If you have an investment property and you sell it, you can qualify for an IRC section 1301 exchange and defer capital gains if you purchase another similar type of property. The asset you sell and the asset you buy must be of “like kind,” even if they differ in terms of their quality or grade. An example of a like-kind exchange would be selling an apartment building you own in the United States and buying another apartment building in the U.S. that is larger. However, if you sold an apartment building in the U.S. and then bought an apartment building offshore, this would not be a like-kind exchange and you would not be eligible to defer your capital gains.
The requirement that the exchange be a like-kind exchange is just one of many criteria that the IRS uses to consider whether you are eligible for an IRC section 1031 exchange. There is also a strict time limit. For example, the property that is being exchanged generally has to be identified within a period of 45 days and received within a period of 180 days although there are some exceptions.
An IRC section 1031 exchange can allow you significant financial advantages but you need to get legal help understanding all of the rules. A Las Vegas, NV real estate investment lawyer at Pintar Albiston LLP is here to help. Call today to schedule a consultation and learn more.
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