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1031 Exchange Corporation

1031 Exchange Corporation. Teresa Person CES® tperson@1031exchangecorp.com. Save Your Investor Clients Tax Dollars with a §1031 Tax Deferred Exchange. The ABC’s of Exchanging. What is a 1031 Deferred Exchange. Historical Perspective Original Tax Law Starker Case Against the IRS

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1031 Exchange Corporation

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  1. 1031 Exchange Corporation Teresa Person CES® tperson@1031exchangecorp.com Course No. 01-00-095-26094 Provider No. 0001

  2. Save Your Investor Clients Tax Dollars with a §1031 Tax Deferred Exchange The ABC’s of Exchanging Course No. 01-00-095-26094 Provider No. 0001

  3. What is a 1031 Deferred Exchange • Historical Perspective • Original Tax Law • Starker Case Against the IRS • Defers or Eliminates Tax on Capital Gains • “Gain or loss is not recognized when property held for use in trade or business or for investment, is exchanged for like-kind property to be held for use in trade or business or for investment.” Course No. 01-00-095-26094 Provider No. 0001

  4. Requirements of an Exchange • Must be Investment, Business or Income Property • Must Exchange for Property of a “Like-Kind” • Rules flexible with definition of “Like-Kind” when Real Estate is exchanged • Must Properly Document as an Exchange Course No. 01-00-095-26094 Provider No. 0001

  5. Various Reasons to Exchange • Consolidate or Diversify Investments • Reduce/Increase Number of Units • Move to Various Types of Units • Relocation of Investment • Greater Cash Flow • Raw Land vs. Income Property • Can be an Important Part of Estate Planning Course No. 01-00-095-26094 Provider No. 0001

  6. Types of Exchanges • Deferred Exchange • Sale then Purchase • Reverse Exchange • Purchase then Sale • Construction/Build to Suit • Personal Property • Second/Vacation Homes Course No. 01-00-095-26094 Provider No. 0001

  7. The Exchange Process • Reference Exchange in Contract or Attach Addendum • Contact Intermediary • Close Sale – Proceeds to Intermediary • Identify Replacement Property • 45 and 180 deadlines • Contract for Replacement Property • Notify Intermediary • Close on Replacement Property Course No. 01-00-095-26094 Provider No. 0001

  8. Special Exchange Issues • Timing • Related Parties • Equity versus Proceeds • Boot • Constructive Receipt • Same Taxpayer Rule • Partial Exchanges – Okay • Business Property • Seller Financing Course No. 01-00-095-26094 Provider No. 0001

  9. Related Sections in the Tax Code • §121 – Principal Residence Exemption • No two year tolling period • No IRS forms to complete • $250,000 for Single Filers • $500,000 for Married Filers • § 1033 – Condemnation/Involuntary Conversion • Tolling period of 2 or 3 years • No Intermediary Required • No Constructive Receipt Issues • Some Like-Kind Restrictions • Filing with IRS is Required Course No. 01-00-095-26094 Provider No. 0001

  10. What Happened in 2013 • Expiration of tax cuts caused a substantial increase in federal income taxes for most taxpayers! • Capital Gains Tax from 15% - 20% • Adjusted Gross Income greater than $450K/$400K • Surtax for Affordable Care Act add 3.8% • Applies to Net Investment Income • To the extent in excess of $250K/$200K • Does not include gains from sale of properties used in the ordinary course of business, unless the properties are a “Passive Activity” • AGI $250,000/$125,000/$200,000 • Doesn’t apply to C Corporations • Ordinary Income Tax increased to 39.6% • Does this apply to 1031 Exchanges? Yes, tax can be deferred Course No. 01-00-095-26094 Provider No. 0001

  11. What is on the Horizon for 1031 Exchanges • Higher Tax Rate • Rollover • Elimination Course No. 01-00-095-26094 Provider No. 0001

  12. Investment Benefits without Exchange • Sales Price $500,000 • Less Costs of Sale 50,000 • Adjusted Sales Price $450.000 • Adjusted Basis $200,000 • Depreciation Taken $ 45,000 • Taxable Gain ($450,000 - $200,000) $250,000 • Tax on Disposition $ 61,250 • ($250,000 X 20% plus $45,000 x 25%) • Amount Remaining to Reinvest $388,750 Course No. 01-00-095-26094 Provider No. 0001

  13. Investments Benefits with Exchange • Sales Price $500,000 • Less costs of sale 50,000 • Proceeds $450,000 • With an exchange, the tax is deferred allowing the full amount of proceeds to be reinvested. Assuming a 80% LTV ratio, an additional $306,250.00 in property can be purchased Course No. 01-00-095-26094 Provider No. 0001

  14. Estate Planning Benefits Sales Price $ 400,000.00 Less Basis 150,000.00 Recognized Gain $250,000.00 Left to Heirs: Sales Price $400,000.00 Less Basis 400,000.00 Recognized Gain $ 0.00 Heirs Hold Then Sale : Sales Price $500,000.00 Less Basis 400,000.00 Recognized Gain $100,000.00 Course No. 01-00-095-26094 Provider No. 0001

  15. IN SUMMARY QUESTIONS Course No. 01-00-095-26094 Provider No. 0001

  16. Thank you for your time. Please contact me anytime with questions about Tax Deferred Exchanges. www.1031exchangecorp.com or tperson@1031exchangecorp.com Course No. 01-00-095-26094 Provider No. 0001

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