Selling commercial real estate in Northern Utah? Consider a 1031 Exchange
If you own commercial real estate and want to sell it to purchase another property, a 1031 Exchange may be the solution you’ve been waiting for. This process allows investment property owners to sell their real estate and buy a similar like-kind property while deferring capital gains tax.
This page will outline everything you need to know about 1031 Exchanges.
What is a 1031 Exchange?
A 1031 Exchange is an Internal Revenue Service (IRS) tax rule that helps commercial property owners save on capital gains tax. It works by allowing these owners to reinvest in their business.
The process follows Section 1031 of the Internal Revenue Code and is fairly straightforward. In summary, if a business owner currently owns a property, they can sell that property and reinvest the proceeds into a different property—without immediate tax liabilities. In a 1031 Exchange, the seller can defer the capital gains tax involved in the transaction.
While at one point a 1031 Exchange could apply to all business assets, changes to the tax code now limit this process to real estate investment properties. It’s important to note, however, that there are certain limits on the timeframe and type of properties that qualify.
It’s also worth noting that you cannot hold the money from the transaction during the Exchange. To keep your returns from becoming taxable, all funds must be held in escrow.
A 1031 Exchange can ultimately help you save money while you invest in your business. And it doesn’t have to be overwhelming. Many investors here in Utah rely on me and our experienced team at Crest Realty to assist in the completing the 1031 Exchange process.
Why consider a 1031 Exchange?
There are many reasons a real estate investor might opt for a 1031 Exchange:
- To invest in a property with better returns.
- To consolidate several properties into one.
- To reset the depreciation of a property.
My team and I will do everything in our power to walk you through the 1031 Exchange process. We will let you know whether this tax-deferred procedure is the right solution for you, and guide you through every step of the way.
What types of properties qualify?
To qualify for a 1031 Exchange, your transaction must involve two properties that are considered like-kind. This means they must be similar in character or class according to the IRS, and of equal or greater value than the relinquished property.
Here are some key considerations:
- A property in the United States must be exchanged with another property in the United States in order to qualify.
- Many real estate properties are considered like-kind.
- The properties involved in the transaction must be used for business purposes.
Now let’s discuss the deadlines involved in a 1031 Exchange.
1031 Exchange deadlines
A number of deadlines apply to a 1031 Exchange. After selling a commercial property, the investor must identify all potential replacement properties within 45 days.
From there, the seller has up to 180 days from the sale date (or the tax filing due date—whichever comes first) to acquire the replacement property.
How to start a 1031 Exchange
You will want to work with a qualified intermediary (QI) to begin your 1031 Exchange. My team and I have the knowledge and experience to help you find like kind properties to solidify the deadlines we talked about above.
With my real estate background in Northern Utah, I’ll make the 1031 Exchange process as seamless as possible for investors like you.
Contact me today with any question you may have about 1031 Exchanges in Northern Utah.
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