As I wrote earlier, Section 1031 of the Internal Revenue Code provides a tremendous opportunity to build wealth by deferring taxes. Within carefully defined limits, investors may carry forward gains made on one property into another property and defer capital gains taxes. The 1031 exchange rules are complicated, so be sure to consult with your tax professional. Let’s continue with some important points.
Reverse Exchange
This occurs when an investor wants to acquire replacement property prior to the closing of the relinquished property. Warning: reverse exchanges are much more costly and complicated than a normal 1031 exchange, so please consult with your tax professional and title officer prior to initiating this type of exchange.
Special Circumstances
If any of the circumstances listed below apply to your transaction, be sure to notify your real estate agent, your title officer and your tax professional.
- Disposing of property held by a partnership
- Disposing of property held in a living trust
- Exchanging property with a related party
- Receiving cash from the exchange
- Acquiring property of lesser value than the relinquished property
- Carrying back financing on the relinquished property (carry back note)
- Acquiring replacement property in the following tax year
- A reverse exchange transaction
- Improvements will be made to the replacement property (construction)
- Acquiring replacement property with spouse or others whom were not a party to the exchange
- Combination exchange (part investment property and part owner occupied)
- Residing in a state other than the relinquished property
Please contact Michael Zimmerman if you have a specific question about 1031 exchanges or visit my web site to find investment opportunities using my Honolulu home search.
This information is provided as a courtesy only, is not a warranty and should be independently investigated by buyers. This information is deemed reliable, but NOT guaranteed. Consult your attorney and tax advisor before you exchange investment property.
