Tax Free Exchange
Transfer of real estate from one taxpayer to another that are exempt from federal income taxes. An example is an exchange of property in which ownership of transferred real estate is still kept. In the year of exchange, there is no recognized gain or loss. However, there is an adjustment to basis of the property received in the transfer, in effect deferring the gain upon future disposition.
1031 Tax Free Exchange
Also called a like-kind exchange. An exchange in which tax benefits are available to real estate owners planning to sell their investment, rental, business or vacation real estate, and reinvest the net proceeds in other real estate.
Real Estate held for these purposes are called like-kind/1031 properties. Property owners may sell like-kind properties and defer taxes on the sale's profits by meeting the requirements of Internal Revenue Code (IRC) 1031 exchange. The purpose of the 1031 exchange is to allow sellers of like-kind property to buy replacement property of like-kind within a specific time period and defer taxes. The deferred profit tax benefit applies despite a time lapse between the sale of the taxpayer's former property and his purchase of replacement property. This sell-now, buy-later situation is called a delayed exchange.
The 1031 exchange applies only to property other than the personal residence or dealer property. Specifically included for exchange are properties used or held for rental income, business purposes, investment, or as vacation homes. Taxwise, investment properties include vacant land held for profit, ground leases and management-free triple net lease. An owner of these qualifying like-kind properties can complete a 1031 exchange, but he must follow the to time constraints.
A 1031 exchange differs from the more informal 1034 tax deferred rollover, which applies to a personal residence and has more lenient deadlines. Unlike a 1034 rollover, a 1031 exchange has different deadlines and other criteria. The replacement property must be acquired before 45-day and 180-day deadlines have run. Note that often, brokers are unable to arrange a nearly simultaneous closing for both legs of an exchange.
Popular Real Estate Terms
Not paying taxes legally due the government. Examples are the failure to report rental income received and claiming false deductions on real estate holdings. The penalty for tax fraud is ...
Same as term legal description: A description of real property including metes and bounds, government rectangular survey, or lot numbers of a recorded plat. All property deeds have a legal ...
Right of a property owner located adjacent to an airfield to use the airspace above a certain distance to fly an airplane. However, the owner may not be allowed to put structures, signs or ...
Cash payment to a lender so as to lower the interest rate on a loan a borrower must incur. The lower rate may apply for all or a part of the loan term. ...
In order to define the rate of return on investment, or more commonly known as ROI we are also going to explain how it can be calculated and what to look for in the return rate. Investing ...
Payment of the minimum tax by using legal tax planning opportunities such as estate planning. The use of tax avoidance strategies is a sound approach to retaining cash flow. On the other ...
A federal act requiring potential purchasers and lessees of undeveloped land be provide with all necessary information required to make an informed decision regarding the desirability of ...
Cost excluded from the minimum lease payments to be made by the lessee in a capital lease. The lessee reimburses the lessor for the lessor's expense payments. ...
When someone throws around the term “mobile home”, it almost requires further explanation to fully understand what that person is talking about. Why is that? Well, one mobile ...
Have a question or comment?
We're here to help.