A Knowledgeable Realtor can Save YOU Money on 1031 Exchanges

For many homeowners, commercial investors, and quite possibly you, the sale of your nonprimary residence, when you sell it, may be subject to capital gains taxes, resulting in tens of thousands of dollars owed to the federal government upon sale.

As most people are aware, when you sell a "primary residence" you are allowed up to $500,000 in profit (capital gains) tax-free. This assumes that you are married and can prove that you have spent any two of the past five years as an occupant of the property AND that you have not sold another primary residence within the past two years.

If the property is not your primary residence, you can defer every dollar of the capital gains tax if you can qualify your property as an investment or rental property and then EXCHANGE it for another property of equal or greater value. This is a deferral of taxes. Ask me if you want to know how to eventually eliminate the tax liability, entirely.

Currently, the IRS program called a 1031 EXCHANGE allows real estate investors to delay paying both capital gains and "recapture" taxes that would normally be due upon the sale of a property. Here's some of the rules:

• To qualify, property must be an investment or rental property, raw land or any Comerica or residential property located in the U.S. if it is held primarily for income or appreciation.
• All proceeds from the sale MUST be held by a "qualified intermediary." You, as the seller, may not have possession of the funds while searching for your "like-kind" property.
• You have a maximum of 45 days to identify in writing the EXACT property(s) you have interest in purchasing. You may identify and have an actual contract to purchase a replacement property before your initial property closes. You may even close on the replacement property before your initial property closes under the rules of the "Reverse 1031 Exchange." This type of transactions is prone to more risk and higher fees, so please feel free to ask me for further information if this interests you.
• You have a maximum of 180 days to close on the new property, which also must be in the U.S.
• In order to defer ALL capital gains taxes, you MUST spend at least as much as the selling price of your initial property (less cost of sale such as commissions and title insurance fees). Your loan balance is irrelevant in this calculation and you must spend all of the cash proceeds received format he initial sale.
• You must continue to hold the new property as an "investment" property and NOT primarily for personal use. If you originally owned a commercial building or vacant land, you may exchange it for a residential property so long as you attempt to rent the property.

Mike Krueger has more ideas to save tax money on 1031 Exchanges. Feel free to call, (970)485-1518, or email, mikek@realtor.com