A 1031 investment property exchange can defer capital gains taxes, but only if it’s done correctly. All too often investors come to the idea of a 1031 after they have already finished some crucial steps in the act. What can’t be emphasized enough is that anyone considering selling and getting a property should consult a tax advisor or expert before doing anything towards that exchange. That can help to save you headaches and a serious tax bill by making sure you do everything properly for the exchange to be valid.
A typical situation is for someone who has sold a property who now wants to get tax deferment through a 1031. It is a fairly popular question faced by folks who handle these transactions, as well as tax counselors. While a lot is dependent on whether the property is actually sold or is in the midst of being for sale, most of the time when anyone says “sold,” it’s already too late to initiate a 1031.
If a property has actually been sold, and that transaction has been closed, it’s too late for capital gains tax deferment, period. Once the sale has closed, the deed has been transferred and delivered and the buyer is now the owner of the property. A QI, or Qualified Intermediary, is a requirement to be used during a 1031 exchange, when the seller is preparing to sell so that the proper invoice, known as constructive receipt, can be handled by the QI according to the 1031 guidelines. This cannot be done after the fact.
If the property has not actually sold, if for instance it’s only up on sale or in the midst at some specific point without the funds changing hands, then a QI can see to it that the funds are directed to the right place when the money is exchanged to form the constructive receipt of the profits.
The necessity of consulting your tax consultant, legal counsel or 1031 expert before going on to make any type of real estate exchange should be clear, given the guidelines governing such an exchange.
Handling transactions well during transactions likeTenants-in-Common (TIC) Property and 1031 investments can be hard. Get expert information at 1031investmentopportunity.com.