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Our firm is experienced in handling
Section 1031 Like-Kind Exchange transactions. We can also assist in
the selection of a qualified intermediary.
What is a 1031 Like-Kind Exchange?
What is an "Exchanger?"
What is a "Qualified Intermediary?"
How
can a 1031 work to my benefit?
What is a "Delayed Exchange?"
What are the time limits in
a delayed exchange transaction?
Can the exchanger hold the
proceeds during the delayed period?
What is a 1031 - Like Kind Exchange?
A 1031 - Like-Kind Exchange is a tax deferred exchange
transaction under section 1031 of the Internal Revenue Code. This
section allows for the sale of certain types of real and personal
property with the deferral of payment of capital gains tax at that
point. The key is the language in the code which states:
"No gain or loss shall be
recognized on the exchange of property held for productive use in a
trade or business or for investment purposes if such property is
exchanged solely for property of a like-kind which is to be held for
either productive use in trade or business or for investment purposes."
This means that you must chose replacement property which is "like-kind"
and you (the investor) cannot receive any "boot" (cash or other
benefits) at the closing.
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What is an "Exchanger?"
An "Exchanger" is the investor in the exchange
transaction. The Exchanger will be both selling the "Relinquished
Property" and acquiring the "Replacement Property."
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What is a "Qualified Intermediary?"
A "Qualified Intermediary" is a party to a "deferred" or
a "reverse" exchange transaction. The selection of a Qualified
Intermediary is an essential part of the transaction.. It is extremely
important that the Qualified Intermediary be familiar with the
requirements of the 1031 process and the pitfalls that may be faced.
The security of the proceeds are of the utmost concern. A good
Qualified Intermediary will be experienced in 1031 transactions and have
the financial resources and backing to be there when you need them.
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How can a 1031 work to my benefit?
Under section 1031 you may be able to sell property and
replace it with property of "like kind" without having to pay tax on the
gain. This can be extremely beneficial by allowing the leveraging of
all of your gain in a real estate transaction. This means that all of
your gain may be used in the purchase of the replacement property.
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What is a "Delayed
Exchange?"
A "Delayed Exchange" means that the relinquished
property will be disposed of with some delay between that event and the
acquisition of the replacement property. This period of time between
the original sale and the acquisition of the replacement property is
subject to strict rules imposed by the Internal Revenue Service. If the
rules are not followed the "exchange will fail and the tax will not be
deferred.
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What are the time limits in
a delayed exchange transaction?
Upon the sale of the relinquished property the exchanger
will, generally have fourty five (45) days to identify potential
replacement property and one hundred eighty (180) days to complete the
exchange transaction. Both of these time limits are from the date of
the sale of the relinquished property. These are not all of the time
rules involved in the delayed exchange transaction. We will be happy to
discuss these requirements with you.
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Can the exchanger hold the
proceeds during the delayed period?
No, the exchanger cannot hold the funds during the
delayed period. The exchanger also cannot be in constructive receipt of
those funds. The proceeds of the sale of the relinquished property will
be parked with a "Qualified Intermediary" until the acquisition of the
replacement property.
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