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1031 Exchange Overview


Real Property Transactions

Most investors are not aware that taxation on a personal residence is not the same as taxation on an income or investment property. Under Internal Revenue Code 121, a homeowner may upon the sale of a principle residence exclude up to $250,000 of capital gains if single, and $500,000 if married, provided they have owned and occupied the property two of the previous five years.

You are probably aware that if an investor sells property, they pay tax. But these taxes property of a "like-kind" (see right).

There are benefits of exchanging that include using leverage to maximize your investment dollars and property diversification to allow you a wide range of investment freedom. 1031 Tax Deferral can be merely a simple swap of two properties to a more complex multi-property transaction. Which type of exchanges best suits your needs will determine your investment strategy and the nature of the transaction.

Proper use of the tax deferred sale IRC 1031 allows you to sell rental property or land, acquire new real estate of any type and not pay one dime in capital gain taxes. You need to become one of the thousands of investors who are profiting every day through 1031 exchange. are paid on capital gain, not on equity or profit. Property that qualifies for preferential treatment under Internal Revenue Code 1031 though is treated differently: "No gain or loss shall be recognized if property held for productive use in trade or business or for investment purposes is exchanged solely for.

About the Benefits of Exchanging

Susie can explain the following benefits, and how they impact your investment needs:
  • Relocation
  • Consolidation
  • Diversification
  • Cash Flow
  • Management Reduction
Contact Kay & Jim Vider today to discuss whether or not the 1031 Tax Exchange could be for you! "The true power of exchanging is the ability to meet investment objectives without losing equity to taxation." Leverage is a method of acquiring real estate worth many times the value of the initial investment. Tax deferment increases leverage. To understand how tax deferment increases leverage, the investor has to comprehend that every dollar saved by tax reduction allows an investor to purchase 4-5 times as much real estate. Leverage occurs with exchanging, not with selling. This is easily shown in this chart:

Sale Exchange
Proceeds
$200,000
Proceeds
$200,000
Tax Owed
-$80,000
Tax Owed
-$0
Cash to Reinvest
$120,000
Cash to Reinvest
$200,000

And for each investor that purchases property with a 20% down payment, using leverage, each could buy a property worth:

Sale of property: $600,000
Exchange of property: $1,000,000

In this example, the investor who took advantage of the 1031 Tax Exchange has $400,000 more property than the investor who sold property.

Download PDF (144 KB):
? Base Rules for a 1031 Exchange

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Like-Kind Property

"Like-kind" does not refer to the nature, character or type of property. Instead, it addresses the intended use of the property. Since many investors wrongly believe they must acquire property like their relinquished property, they miss out on opportunities and are quite surprised to learn a wide variety of properties can be considered "like-kind."

The main governing principle here is that provided the property is initially acquired and held for either business or investment purposes, it can qualify as a suitable replacement property under IRC Section 1031. Investors do not have to exchange for exactly the same type of property as relinquished.

These means that any of the following can be considered "like-kind" property exchanges: a duplex for a fourplex, bare land for improved property, a rental house for a retail center, an apartment building for an office building.

There are, however; some items that do not qualify and these include: The tax code also lists items that are not considered "like-kind." These include:

  • Stock in trade or other property held primarily for sale
  • Stocks, bonds, or notes
  • Other securities or evidences or indebtness
  • Interests in a partnership
  • Certificates of trusts or beneficial interest
Also, any property outside the United States is considered non "like-kind" as well.
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Jim & Kay Vider
Panama City Beach, FL 32408

Full Sail Realty, LLC
1514 W 23rd St, Unit B
Panama City, FL 32405

Jim's cell 850-596-0637
Kay's cell 850-596-0638

info@panamacityproperties.net

About Jim and Kay Vider