Ornelas Property Management LLC

11150 Huron St, Suite 100
Northglenn, CO 80234

The IRS Rules for Exchange...

 


You will need to follow
six primary rules for your exchange to meet stringent IRS
regulations:

1) Real Property Use. Both your old and new properties must qualify as investment
or business use. If both properties pass this test, you can exchange nearly any type of
real estate.

2) 45 Day Identification Period. You have 45 days from the closing of your sale to
list the properties you may want to buy. There are no exceptions to this deadline.

3) 180 Day Exchange Period. From the sale closing date, you have 180 days to
close on the purchase of one or more properties from 45 day list. Again, there are no
exceptions to this deadline.

4) Qualified Intermediary (QI). The IRS mandates that you use a QI to prepare the
legal documents for your exchange. Because the QI must be independent, it cannot be
your friend, employee, broker, or even your accountant or attorney. The QI also holds
your money, so that you do not have access to it.

5) Proper Title Holding. You must purchase and take title to your new property
exactly as you held title to your old property.

6) Reinvestment Requirement. To defer all of your capital gain tax, you must buy a
property equal or greater in value than the one you sold. Also, you must reinvest all of
the cash proceeds from your sale.


What is a 1031 Exchange?
1031 exchanges are specifically structured transactions that join together the sale of an
old property and the purchase of a new property for the purpose of deferring taxes.
Exchanges are primarily used for buying and selling investment real estate, but they can
also be used for personal property that is used in a business. Examples of qualifying
property include bare land, rental property, commercial buildings and homes other
than your primary residence.



 

How can a 1031 Exchange work for me?
A 1031 exchange can defer the capital gain taxes that are due when you sell property
that has increased in value or been depreciated for tax purposes. These federal and
state capital gain taxes can be costly.  Internal Revenue Code Section 1031 offers you
some relief. It allows you to defer payment of capital gain tax by investing in a new
qualified property.  An exchange can benefit you in several ways. By deferring taxes,
you have increased flexibility, leverage and buying power.  Exchanges also allow you
to change, diversify or consolidate your investments.

 

Contact us for more information