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
A relatively unknown term, laches or the” doctrine of laches,” means failure to assert one’s rights or a claim in a given matter in time. Failing to take action on a ...
Reduction in taxes payable to the IRS or local government. A tax credit is more beneficial to the taxpayer than an itemized deduction because it reduces taxes on a dollar-for-dollar basis. ...
The best atrium definition is that of a room with a roof open displaying the sky, but as with most things architecture (or even art) the atrium definition has changed with the passing of ...
A free-standing building having four dwelling units under one roof. Normally a quadriplex is a two-story complex with one dwelling unit located on top of and adjacent to another. Other ...
Exposure can have various meanings in real estate and insurance, depending on the context. Let’s have a thorough look at these scenarios! Exposure as property’s ...
Also known as “cap rate” or “income yield”, Capitalization Rate is a useful way to compute the rate of return on a real estate investment. It is commonly used in the ...
A measure of actual starts of houses, condominiums, and apartment construction. When an economy is going to take a downturn, the housing sector is the first to decline. The strength in ...
Shingles having uniform length, but random width. Random shingles give a creative appearance to a roof. ...
Brick wall where a space or cavity is left between the inner and outer walls and is usually filled with insulation. ...
Have a question or comment?
We're here to help.