Maximizing Commercial Real Estate Investments
A 1031 Exchange, part of the United States Internal Revenue Code, allows an investor to defer federal capital gains and recaptured depreciation taxes under specific circumstances. This means the investor can use this additional capital, taxes that would otherwise be due to the IRS now, to make a significantly larger new real estate investment.
Hartwell Realty has extensive experience helping their client’s navigate the complex array of legal requirements involved in initiating 1031 Exchanges. We help guide our clients through the options as they sell investment properties and consider if initiating a 1031 Exchange is right for their investment interests at this time. A 1031 Exchange defers an investor’s tax liability, and there is no limit to how many 1031 Exchanges an investor can initiate. This has the potential of increasing an investor’s available capital.
1031 Exchange Requirements
Once it is determined that initiating a 1031 Exchange will benefit the investor, there are several requirements set out by the IRS. These include the investor selling a property be the same investor who buys another property, using the deferred taxes toward that purchase. After closing on the sold property, the investor is allowed 45 days to identify a potential replacement property. This is referred to as “Property Identification.” The replacement property must be purchased within 180 days of closing of the initial, sold property. In order for the 1031 Exchange to allow the investor to defer taxes otherwise owed but used to reinvest in a new property, the value of the second property has to be greater than the first, also known as “Trading Up.” Among other factors, the IRS will look at how long an investor holds on to the second property, or “Hold Time”, to confirm that the 1031 Exchange was valid. Also, the various interests of related parties, which can include individuals, partnerships and corporations, family members, and estate executors and beneficiaries, have to be settled.
Contact Hartwell Realty today to see how we can work together to meet your business and investment goals.