Andy Gustafson

Reverse 1031 Exchange Alternatives

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Reverse 1031 exchanges were officially recognized with Revenue Procedure 2000-37, providing a safe harbor for the Exchange Accommodator Titleholder (EAT) to park either the relinquished (old) or replacement property for up to 180 calendar days. Prior to this milestone, 1031 exchanges were either forward or simultaneous exchanges where the old property is closed before the new property is acquired. Simultaneous 1031 exchanges are those where the old and new properties are exchanged at one closing. Reverses provided flexibility to acquire the new property before selling the old.

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1031 Exchange Rules: Equity and Mortgage Boot

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1031 exchange rules apply to Internal Revenue Code Section 1031 tax deferred exchanges. A 1031 exchange allows resident or non-resident United States federal taxpayers to defer capital gains and recaptured deprecation taxes when exchanging real or personal property held for productive use in a trade, business or for investment for like-kind real or personal property held for productive use in a trade, business or for investment. The tax otherwise paid in a traditional sale is deferred indefinitely until the replacement property is sold or another 1031 exchange is initiated.

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A Beginner’s Guide to a 1031 Exchange

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1031 Eligible Vacation PropertyThe benefits of a 1031 exchange have been well-documented by CPAs and financial advisors as a wealth building strategy for individuals, trusts, partnerships and corporations — both United States residents and non-resident foreigners. The core of the strategy is the deferred federal, state and recaptured depreciation taxes, enabling the taxpayer to cash in on, an indefinite interest free loan given like-kind replacement property of equal or greater value is acquired and strict 1031 exchange rules are followed.

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Three Benefits of a 1031 Exchange

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1031 Exchange Vacation PropertyA 1031 exchange enables a taxpayer, both United States resident and non-resident foreigner, to defer capital gains and recaptured depreciation taxes when exchanging real and personal held for productive use in a trade, business or for investment property for like-kind real and personal property. The tax deferral can represent upwards of 40 percent of the property’s sale price.

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A 1031 Exchange Makes Sense When Selling Gold and Silver

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1031 Exchange When Selling SilverA 1031 exchange allows the taxpayer to defer the recognized gain or capital gains tax when the metal or coin is replaced with like-kind precious metals or coins within 180 calendar days of the sale. The 1031 tax deferral is available to all federal income taxpayers, whether a United States resident or non-resident alien. What differentiates a 1031 exchange from a sale are the supporting documents created by the Qualified Intermediary, adherence of 1031 exchange rules and the condition that the taxpayer does not receive, pledge, borrow or otherwise obtain the benefits of the Exchange Account before the end of the Exchange period.

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1031 Exchange: Seller Financing

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Given the current tight credit market, taxpayers who want to initiate a 1031 exchange may consider financing or carrying a note for a Buyer to acquire the relinquished property. A 1031 exchange is a strategy to defer the federal and state capital gains and recaptured depreciation tax when selling and replacing property held for productive use in a trade, business or for investment. The tax deferral represents an indefinite, interest free loan that can defer upwards of 40 percent of the sales price. 1031 eligible property includes real property such as timberland, self-storage units, commercial property, single family residential, oil and gas royalty interests as well as personal property including aircraft, precious metals, vintage cars, artwork and collectibles.

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