Real Estate
Investors
If you’re
selling a property to buy your next,
take advantage of this excellent
opportunity to gain dynamic leverage on
your purchase.
What Is A 1031 Exchange?
1031
Exchange, a properly structured exchange
allows an investor to sell a property,
to reinvest the proceeds in a new
property and to defer all capital gain
taxes.
There are three components to a
tax-deferred IRC Section 1031 Exchange:
-
Qualifying property
-
Values
-
Timing
Qualifying Property
The
properties exchanged must be of the same
general nature, characterized by being
held for investment or use in a trade or
business.
Values
The
general rule for a fully deferred
exchange is that the exchange must trade
or up in:
-
Equity
-
Debt
-
Fair
Market Value
Timing
There are
two basic forms of tax-deferred
exchanges. They are a simultaneous
exchange, and a delayed exchange. There
are multitudes of variations on these
two types of exchanges, but they will
all fall into one of the two categories.
To
understand the powerful protection an
exchange offers, consider the following
example:
-
An
investor has a $200,000 capital gain
and incurs a tax liability of
approximately $70,000 in combined
taxes (depreciation recapture,
federal and state capital gain
taxes) when the property is sold.
Only $130,000 remains to reinvest in
another property.
-
Assuming a 25% down payment and a
75% loan-to-value ratio, the seller
would only be able to purchase a
$520,000 new property.
-
If the
same investor chose to exchange,
however, he or she would be able to
reinvest the entire $200,000 of
equity in the purchase of $800,000
in real estate, assuming the same
down payment and
loan-to-value-ratios.
Sharlet Hakimi Services Clients All Over
the Chicago Suburbs:
Palatine, Rolling Meadows, Arlington
Heights, Barrington, South Barrington,
North Barrington, Barrington Hills,
Inverness, Hoffman Estates, Schaumburg,
Mt. Prospect, Prospect Heights, Buffalo
Grove, Long Grove, Lake Zurich,
Wheeling, Mundelein, Kildeer, Deer Park,
Des Plaines, Elk Grove Village,
Streamwood, Lake Barrington, Park Ridge,
Northfield, Northbrook, Carol Stream,
Wood Dale, Bensenville, Rosemont,
Downers Grove, Lombard, Bartlett,
Hanover Park, Deerfield, Glenview,
Skokie, Glencoe, Winnetka, Evanston
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