A number of buyers in the Summit County real estate market use 1031 Tax Deferred Exchange to avoid triggering capital gains liabilities. The 1031 Exchange is a good choice when several elements are present.
The Tax Deferred Exchange allows US taxpayers to replace one investment property with another similar property and defer capital gains. The extra cash allows the investor to purchase more valuable investment properties. For example, a buyer may choose to sell a ski condo at Lake Tahoe and purchase a condominium in Summit County. The capital gains tax that would have been triggered by the sale of the Tahoe property can be used to help purchase the Summit County real estate. The capital gains tax is deferred until the Summit County property is sold. The 1031 Exchange may also be used within the local area.
The 1031 Exchange must be accomplished following the rules of the game. The Treasury Regulation of 1991 states that the taxpayer must identify a replacement property within 45 days and close on the purchase within 180 days of the closing of the relinquished property. If the tax return is filed earlier than the 180 days, then the closing must be before the return.
The proceeds from the first property do not go to the seller. They must be held by a Qualified Intermediary. Several persons are disqualified to act as Qualified Intermediaries, including those close to the Exchangor such as employees, attorneys, brokers or real estate agents. Exchangors generally use title insurance companies, escrow companies, and trust companies as Qualified Intermediaries. The Summit County real estate market relies heavily upon Land Title Guarantee Company to provide this service.
For a successful 1031 Exchange, the Qualified Intermediary (QI) must enter into an Exchange Agreement with the Exchangor. The QI becomes a part of the transaction. They must be informed of several pieces of information as they happen. The QI needs to know the closer or contact with the title company, receive information about the identified replacement properties within 45 days, receive the Assignment of Contract Replacement Property before closing on the replacement property, and receive all title work. Of course, the, QI must receive the proceeds from the first sale and transfer those funds to the closer of the replacement property.
A Tax Deferred 1031 Exchange is an excellent choice for investors who desire to reinvest the proceeds of one sale into another. It does not allow for any funds to be freed up as cash. We recommend that investor desiring to enter into 1031 Exchanges consult with Certified Public Accountants or Tax Attorneys.
Our RE/MAX Properties of the Summit offices are located in Keystone, Frisco, and Breckenridge. Click here for assistance buying homes, townhomes, and condominiums in Summit County, Colorado.