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1031 QUALIFIED INTERMEDIARY SERVICES
In 1997, Congress passed new, generous rules
that effectively eliminate capital gains tax on the sale of
most people's primary residence. But what happens if you are
selling any other classification of real estate investment
property, business property, vacation home, etc.? You will
be taxed on your profit unless you use the IRS Section 1031
Exchange Rule.
Despite recent reductions in capital gains
tax rates, why pay taxes on the sale of investment real estate
when you can defer that tax and increase your buying power
on a bigger and better property?
Through the use of a “1031 Exchange”,
Hollander and Company LLC can assist in putting off taxes
you would otherwise pay on the sale of investment property.
In conjunction with the Attorneys Exchange
Alliance, serves as Qualified Intermediaries, in order to
help firm clients defer tax upon the sale of investment real
estate.
For further information on this service,
contact Jay Hollander, Esq. at jh@hollanderco.com.
NOT SURE WHAT 1031 EXCHANGES ARE ALL ABOUT?
Read our 1031 FAQ below.
WHAT IS AN EXCHANGE?
Use of the word "Exchange" is essentially
a "legal fiction". What happens in the real world
is that a sale and subsequent purchase are made interdependent
using the Exchange technique and special paperwork. (You sell
to whomever wants to buy and then buy whatever you want from
any Seller.) These "exchanges" are often called
Starker Exchanges or Tax Deferred Exchanges, but a better
name would be The Investment Roll Over Rule. Your money rolls
over into a new purchase.
WHEN SHOULD YOU USE THE TECHNIQUE?
Anytime you are selling real estate that is not your primary
residence and you are faced with an onerous capital gains
tax, use the Exchange technique instead of simply selling.
Virtually any new purchase will qualify as your replacement
property. The diagram below will give you the idea.
WHY SHOULD YOU DO AN EXCHANGE?
Tax money paid to the government is immediately lost
forever and forever is a long, long time ! When you purchased
the property, did it occur to you that you had made the Government
a silent partner who would want to share the profits? Think
of how long it would take you to save money lost to taxes
and to rebuild that hard earned equity. Fortunately, you con
avoid this scenario using the Exchange Technique.
HOW DO YOU DO AN EXCHANGE?
Your sale and subsequent purchase must take place within a
180 day envelope. Special paperwork links these two events
together and allows them to qualify as an Exchange. Sale proceeds
must be deposited in a special account during the period between
the sale and purchase. Exchange Rules require that you designate
a Qualified Intermediary to perform these services. Follow
the explanation below to see how it works:
1. The Exchangor enters into a Contract
to sell to anyone who wants to buy.
2. The Exchangor enters into an Exchange
Agreement with a Qualified Intermediary.
3. The Contract for Sale between the Exchangor
and the Buyer is assigned to the Qualified Intermediary.
4. The Closing takes place, the Exchangor
deeds the property directly to the Buyer and the sale proceeds
are deposited with the Qualified Intermediary.
5. Within 45 days after Closing, Exchangor
identifies possible replacement property to the Qualified
Intermediary.
6. The Exchangor enters into a Contract
to purchase whatever property is desired from the Seller of
that property.
7. The Contract for Sale between the Exchangor
and the Seller is assigned to the Qualified Intermediary.
8. The Closing takes place within 180 days
of the first closing, Seller deeds directly to the Exchangor,
and the monies held by the Qualified Intermediary pay for
the purchase.
9. The Exchange has been completed and no
tax is owed. What really occurred is a Sale and subsequent
purchase that were made interdependent through use of the
Exchange technique and use of a Qualified Intermediary.
ARE THERE ANY RULES OR REQUIREMENTS?
There are three requirements your transactions must meet in
order to have a completely non-taxable event.
The Exchange Technique is not “all
or nothing”. It is possible to get some cash ( which
will be taxable) provided it is done the right way. The Exchange
technique can be flexible to meet certain needs.
A SUMMARY OF EXCHANGE BENEFITS
1. You will save significant money you worked hard to earn.
Tax money is lost forever. The Exchange Technique makes this
loss unnecessary.
2. It is true that you must purchase something new to avoid
the tax BUT the Government helps subsidize your new purchase
with your tax savings and, therefore, your purchasing power
is significantly increased.
Let Hollander and Company LLC help you increase your investment
property buying power!
For further information on this service,
contact Jay Hollander, Esq. at jh@hollanderco.com.
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