Posted by: Roby Robertson | May 14, 2009

Lake Norman Real Estate;1031 Tax Exchange Time Limits

Lake Norman Real Estate,Need to Invest?

Real Living In Style has partnered with NCS Exchange Professionals to assist our Lake Norman and Charlotte area clients with the 1031 Tax Exchanges.

Insights on 1031 Exchanges by Whitney Brannon

NCS Exchange Professionals is a Qualified Intermediary for Internal Revenue Code (IRC) §1031, Exchange of real estate property.

 An IRC §1031 Tax-Deferred Exchange represents a legal, strategic method for acquiring or selling qualified properties in exchange for “Like-Kind” properties within a specific time frame to defer capital gains taxes. You may be able to save substantial dollars by “Exchanging” propertyWhen a business or investment property is sold at a gain, taxes on that gain generally are due at the time of sale. An exception to this standard is provided by IRC Section 1031, which allows postponement of the tax payment on the gain if the proceeds are reinvested in similar property as part of a qualifying “Like-Kind” exchange. Gain deferred in a “Like-Kind” exchange under §1031 is not tax-free, but it is tax-deferred.

The exchange can be exclusively the “Like-Kind” property or it can include the similar property along with cash, liabilities and other types of real estate. When receiving cash, relief from debt or property that is not “Like-Kind”, however, a taxable gain may be triggered in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for similar property of lesser value.

While a “Like-Kind” exchange does not have to be a simultaneous swap of properties, the transaction must meet two time limits. These limits cannot be extended for any circumstance or hardship except in the case of a Presidential Disaster Declaration.

The first time limit is forty-five days from the sale date of the relinquished property to identify potential replacement properties. The identification must be in writing, signed and delivered to a person involved in the exchange, such as the seller of the replacement property or the qualified intermediary. Notice to an attorney, real estate agent, accountant, or similar persons acting as an agent is not sufficient.

Replacement properties must be clearly described in the written identification. In the case of real estate, this means a legal description, street address or distinguishable name. It is important to follow the IRS guidelines for the maximum number and value of properties that can be identified.

The second important time limit is that the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as the original property identified within the 45-day limit described above.

Information obtained from IRS Fact Sheet 2008-18

For More Information contact your Lake Norman Area Agent at (704) 451 7051 or Whitney Brennan at (916) 806-1468.

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