1031 Exchanges
Help Your Clients, Increase Your Commissions
Doing a 1031 exchange gives sellers the opportunity to defer 100% of the Federal and State capital gains taxes associated with the sale of property. How does an exchange work? Put simply, the proceeds received from the sale of a property are rolled-over to purchase one or more other properties of equal or greater value. The seller saves tax dollars, and you have the opportunity to earn extra commissions.
Why Exchange?
In an exchange, all proceeds from the sale of property are available to purchase other property. This is like getting an interest free loan on the tax dollars that would have been due for a cash sale. The tax savings allows your clients to retain equity, and move into properties of higher value each time they perform an exchange.
What's Eligible?
Hold on before you call all of your listers, because 1031 exchanges apply to property held for investment purposes, not to the sale of a personal residence.
The IRS states that exchanged properties must be 'like kind.' For us, this means real-property for real-property, not necessarily land for land or a house for another house. For example, it's fine to exchange a piece of land for an apartment complex, or property in the city for farm land. Read the IRS rules for specific information about what types of properties qualify as 'like kind.'
Here are a few more exchanging basics:
- The sale of a single property does not limit the seller from exchanging into multiple properties. The reverse is also true: the seller can relinquish several properties in order to purchase a single property.
- Sometimes sellers do not use all proceeds to purchase the new property. The unused portion is considered a cash sale, and is taxed.
- The incoming and outgoing funds involved in an exchange flow through the hands of a Qualified Intermediary, also called a Facilitator.
