1031 EXCHANGE 

HOW TO MAXIMIZE YOUR WEALTH WITH A 1031 EXCHANGE 

It is no secret that the Telluride and Mountain Village area offers exceptional investment opportunities. Whether you are looking to sell your investment property for a handsome profit or you are a buyer looking to maximize your investment dollar return, you can be assured that I have the experience and training to serve as your agent. In association with IPE 1031, a qualified intermediary company, and David Brown, IPE 1031’s President, I am pleased to offer expert assistance with your 1031 exchange transaction.  

Did you know that you can exchange into and out of qualifying vacation properties by utilizing Section 1031? We may even be able to help you formulate a strategy to completely eliminate your capital gain tax by converting an investment property into your personal residence. Contact IPE 1031 or myself to find out how Section 1031 can help you maximize your wealth. 

A Profitable Strategy 

A Section 1031 exchange is sometimes referred to as a tax-deferred or like-kind exchange. The principal advantage of a Section 1031 tax-deferred exchange is the ability to use the entire equity of a property owned by a taxpayer to acquire replacement property. Taxpayers who have held onto properties for years because of the tax consequences of selling have the freedom to move their equity into more lucrative or appropriate properties. If a taxpayer intends to continue investing in like-kind property, an exchange is usually the preferable alternative to a sale and a purchase.  

Section 1031 Basics 

Real estate and property owners who hold property for investment or for productive use in a trade or business are eligible for tax deferment of capital gains taxes as authorized by Section 1031 of the Internal Revenue Code (I.R.C.). Section 1031 should not be confused with the personal residence capital gains tax exemption provisions of the I.R.C. Section 121.  

By utilizing Section 1031, a qualifying taxpayer who sells property may reinvest the full proceeds of the sale, including amounts ordinarily paid as capital gains tax, into one or more “like-kind” properties. “Like-kind” property is property that is similar in nature or character. Examples of like-kind property include: rental properties, farms and ranches, offices, motels and hotels, golf courses, raw land, retail properties, industrial properties, certain vacation properties and properties leased for thirty years or more.  

Most tax-deferred exchanges are classified as delayed exchanges. A basic delayed exchange occurs when a taxpayer sells “relinquished” property and exchanges it for a “replacement” property within a 180-day time period. The taxpayer must adhere to other specific procedures and time period limitations, including a requirement that replacement property be identified within 45-days after the closing date of the relinquished property.  

To accomplish a successful tax-deferred exchange, taxpayers must specifically structure their transaction so that it falls within an IRS safe harbor. The safest and most common safe harbor method for structuring a tax-deferred exchange is for an exchanging taxpayer to utilize the services of a qualified intermediary, such as IPE 1031. Careful attention must be paid by the exchanging taxpayer to ensure that a qualified intermediary has been hired prior to the sale of the original relinquished property, and to ensure that the taxpayer or the taxpayer’s agents do not receive any of the proceeds from the sale. 

Certain persons are disqualified by Section 1031 from serving in the capacity of a qualified intermediary. Disqualified parties include a taxpaying exchanger’s employee, attorney, accountant, investment banker/broker or real estate agent/broker. This restriction applies if the taxpayer’s agent has served in such a capacity within the two years prior to the exchange transaction. Disqualified parties additionally include certain family members such as parents, siblings, spouses, and children; and certain business entities owned by the taxpayer. This is not an exhaustive list of persons who may be disqualified. 

By utilizing Section 1031, a taxpayer can defer payment of capital gains taxes each time an exchange is done until an exchanged property is sold and cash proceeds are received. 

Section 1031 is an exceptionally complex tax provision and it is important to seek the advice of a qualified intermediary or a tax or legal professional who has 1031 experience. For more information on Section 1031 like-kind exchanges, I invite you to visit IPE 1031’s website by clicking on the link above.