Las Vegas 1031 Exchanges
Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on exchanges of like-kind properties. For Las Vegas real estate exchanges, like-kind replacement property means any improved or unimproved real estate held for income, investment or business use. One property can be exchanged for two or more properties, two or more properties can be exchanged for one property, a duplex can be exchanged for a four-plex, etc.
Many baby boomers are using one or more investment properties to purchase their future retirement home. By purchasing their “dream home” in advance, these soon-to-be-retirees will rent out the property until retirement. Then later they are able to sell their existing personal residence without a capital gains penalty (subject to IRS maximum guidelines) and subsequently move into the “rental” which now becomes their new personal residence. Using a 1031 Exchange has allowed them to eliminate capital gains tax entirely on their original investment property as well as their original personal residence.
A Qualified Accomodator or Intermediary takes temporary title to the properties until after the exchange has been completed. The taxpayer cannot ever be in possession of the funds received from the sale of the relinquished property. The replacement property title must be taken in the same name as the relinquished property was titled.
A Deferred Exchange is an exchange where the replacement property is closed on at a later date than the closing of the property that is being sold. There are strict time frames established for completion of a deferred exchange. The replacement property must be identified within 45 days of closing on the relinquished property, and closed on within 180 days of the sale date of the first property.
A Reverse Exchange is an exchange in which the replacement property is purchased and closed on before the relinquished property is sold. Usually the Accomodator takes title to the replacement property and holds title until the taxpayer can find a buyer for his relinquished property and closes on the sale. The reverse exchange is subject to the same general time frames as a deferred exchange, with 45 days from the purchase of the replacement property to identify the property to be relinquished and 180 days to close on the sale and complete the exchange.
Exchanges are normally for purchases of property of equal or greater value than the one being relinquished to avoid capital gains taxes entirely, but occasionally the seller may wish to keep part of the proceeds. In this case the seller may be taxed on only the portion of the Exchange that is in excess of the property being purchased.
Always make sure to consult your tax accountant to determine the true benefits and tax implications a 1031 Exchange may have for you personally.
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