A Secret To 1031 Like Kind Exchanges
The decision to utilize the benefits of a 1031 Exchange can be determined with the help of your CPA or Accountant. They will determine for you how much taxes you would pay in selling your property outright. This determination will be based on your adjusted basis in your property and the normal capital gains liability that would occur. Your CPA will help you determine the amount of taxes that would be due to depreciation recapture, which is currently taxed at a maximum rate of 25%. This tax rate is higher than the portion attributed to depreciation.
Normal appreciation can be determined by your CPA or accountant from the natural increase in the value of your property. Normal appreciation is currently taxed at a maximum rate of only 15%. If you are in a state with an income tax or state capital gains tax, your CPA might also determine the amount of state and municipal tax liability.
Once you know what the taxes would be, if you decided to just sell the property outright, you can decide if you want to try to defer those taxes with a 1031 Exchange. Knowledge is power - typically, the costs of doing a 1031 exchange is far less than the tax bill, if you just sold the property outright.
The first step in taking advantage of a 1031 Exchange is to contact a Qualified Intermediary. The Qualified Intermediary will advise you of the need for a written purchase agreement signed by you as the seller and your purchaser. This agreement establishes your desire to sell your relinquished property as part of a 1031 Exchange.
In addition, it is a good idea to add a stipulation or clause in the purchase agreement stating that you want to complete a 1031 Exchange with regards to the property and that the purchaser agrees to cooperate with such. You have now laid the basic groundwork for the closing. For sample cooperation clause go to www.1031podcast.com.
Finally, the closing can take pace and your sale will be competed. Once the deed crosses the table to the purchaser, and the net sales proceeds are paid directly to your QI, your 1031 countdown will begin. The day after the closing is considered "Day One" in the 45 day identification period that you have to identify in writing the properties you want to purchase as your replacement property. Also, it is the start of the 180 exchange period that you have to complete the 1031 Exchange and acquire your replacement property.
In summary, the first step is to work with your CPA or accountant to determine what the capital gains tax will be (including depreciation recapture and state and local taxes.) At this point, you will decide if the 1031 Exchange will be of benefit to you. A Qualified Intermediary can help you and your CPA or accountant realize the full potential of the 1031 Exchange process. The next step is to document your intent to sell the property to your purchaser as well as your desire to complete a 1031 Exchange by inserting text in your purchase agreement.
Having completed your 1031 Exchange, you have started the process of deferring taxes and keeping your money working for you. - 23218
Normal appreciation can be determined by your CPA or accountant from the natural increase in the value of your property. Normal appreciation is currently taxed at a maximum rate of only 15%. If you are in a state with an income tax or state capital gains tax, your CPA might also determine the amount of state and municipal tax liability.
Once you know what the taxes would be, if you decided to just sell the property outright, you can decide if you want to try to defer those taxes with a 1031 Exchange. Knowledge is power - typically, the costs of doing a 1031 exchange is far less than the tax bill, if you just sold the property outright.
The first step in taking advantage of a 1031 Exchange is to contact a Qualified Intermediary. The Qualified Intermediary will advise you of the need for a written purchase agreement signed by you as the seller and your purchaser. This agreement establishes your desire to sell your relinquished property as part of a 1031 Exchange.
In addition, it is a good idea to add a stipulation or clause in the purchase agreement stating that you want to complete a 1031 Exchange with regards to the property and that the purchaser agrees to cooperate with such. You have now laid the basic groundwork for the closing. For sample cooperation clause go to www.1031podcast.com.
Finally, the closing can take pace and your sale will be competed. Once the deed crosses the table to the purchaser, and the net sales proceeds are paid directly to your QI, your 1031 countdown will begin. The day after the closing is considered "Day One" in the 45 day identification period that you have to identify in writing the properties you want to purchase as your replacement property. Also, it is the start of the 180 exchange period that you have to complete the 1031 Exchange and acquire your replacement property.
In summary, the first step is to work with your CPA or accountant to determine what the capital gains tax will be (including depreciation recapture and state and local taxes.) At this point, you will decide if the 1031 Exchange will be of benefit to you. A Qualified Intermediary can help you and your CPA or accountant realize the full potential of the 1031 Exchange process. The next step is to document your intent to sell the property to your purchaser as well as your desire to complete a 1031 Exchange by inserting text in your purchase agreement.
Having completed your 1031 Exchange, you have started the process of deferring taxes and keeping your money working for you. - 23218
About the Author:
Investors in the U.S. can save big money by utilizing 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from Uncle Sam.
posted by X - Men @ 4:27 AM
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