“All in all, the process was very simple, payments to contractors was very quick and painless. I am pretty happy with being able to use the proceeds to make the improvements. I would recommend Atlas 1031 and the 1031 deferred improvement exchange.”
1031 Exchange Blog
Over the past 17 years, we have had the pleasure of guiding thousands of Exchangors through the 1031 Exchange process. Our Blog draws from that experience and includes content ranging from the basics of an Exchange for first time Exchangors to detailed commentary on complex exchanges for the expert investor. If you do not find the topic or specific question you are looking for, reach out to us via email at info@atlas1031.com or call our office to speak with our team at 1 800 227 1031.
1031 Exchanges with Short Sales and Foreclosures
Taxpayers engaged in a 1031 exchange will often include short sale and foreclosure properties in their mix of potential replacement properties. A 1031 exchange allows the deferral of federal and state capital gains and recaptured depreciation taxes when a property of equal or greater value is acquired. The tax deferral is an indefinite postponement of the tax triggered or due when the replacement property is sold, unless another 1031 exchange is initiated.
Three Initial Steps to a 1031 Exchange
Taxpayers who wish to initiate a tax deferral may ask “What are the initial 1031 exchange steps?” in an effort to avoid any mistakes. As a Qualified Intermediary (QI) of 1031 exchanges, I appreciate the question because it shows the taxpayer is taking ownership. With ownership comes better questions and clarity, resulting in fewer if any misinterpretations.
Nevada, Oregon, Virginia and Washington 1031 Exchange State Laws
Eight states have legislated 1031 exchange laws that require the Qualified Intermediary (QI) accommodating the tax deferred exchange to follow or face criminal or civil penalties. The laws serve to protect taxpayer exchange proceeds, establish QI safeguards and procedures to alert the taxpayer of QI changes in ownership. Sanctioned by the Treasury Department and enforced by the Internal Revenue Service, the 1031 exchange allows taxpayers both domestic and foreign to defer federal and state capital gains and recaptured depreciation taxes when property held for the productive use in a business or investment is exchanged solely, for property held for productive use in a business or investment.
California, Colorado, Idaho and Maine 1031 Exchange State Laws
1031 exchange laws have been passed in eight states requiring Qualified Intermediaries to follow specific procedures to protect the exchange proceeds of their residents engaged in a 1031 tax deferred exchange. A 1031 exchange is a Section of the Treasury and IRS Regulations that provides taxpayers a tax deferral on the federal capital gains and recaptured depreciation tax when real or personal property held for investment or in a business is sold and replaced with like-kind property. A Qualified Intermediary (QI) is the third party who accommodates the exchange, providing documentation in accordance with the Treasury and IRS requirements and holding the exchange proceeds. States also recognize the federal statute allowing the taxpayer to defer state capital gains taxes if applicable.
1031 Tax Consequences of Selling Business Assets
When selling a business, consideration of the tax consequences, including a 1031 exchange is often not at the top of the list. Following a meeting with your CFO or CPA, the federal, state and recaptured depreciation tax obligation is determined and now included in the dizzying array of outcomes as is the decision of whether or not to replace the assets. By replacing all or some of the assets, the federal, state and recaptured depreciation taxes can be deferred in a 1031 exchange. Rather than paying the tax, those dollars can be used towards as an interest free loan towards acquiring replacement property. The tax obligation does not go away, but is postponed; delayed until time the newly acquired property is sold. Another 1031 exchange is possible, or should the assets be inherited, the basis is stepped up to the heirs.