1031 exchanges ... huh?
Posted on 4/21/2017
Experienced Buyers and Sellers of Commercial real estate property are probably well versed in the many benefits and strategies available for maximizing profitability. It’s not just about the price!
Your experienced, professional Commercial real estate agent should let you in on the best ways to manage your proposed transactions. In order to advise and guide you correctly, it’s important for your expert to know about your long-range plans. A key factor is: What do you plan to do next — after the buy or sell that’s now on the table?
For the new and inexperienced Commercial real estate investor, it would be a good idea to first spend some time discussing future transaction possibilities — the re-investment options and disciplines that come into play when commercial property turns over. Sometimes, that’s that; it may be just a one time buy or sell. But what if you intend to buy again after a successful sale?
Rolling one transaction right into another can be punitive or smart — depending on how you manage both your profit gains and a critical time factor. While your Commercial real estate agent cannot give financial (or legal) advice, they can give you an informed opinion.
There is a tool available in Section 1031 of the United States Internal Revenue Service Code (26 U.S.C. 1031) that provides for an important strategy concerning property transfer. Certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
IRS Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in a similar property. That’s called a like-kind exchange. (Gain deferred in a like-kind exchange is tax-deferred, but is not tax-free.)
Critical timing disciplines come into the picture, because, under Section 1031, the investor has 45 days to “nominate” potential replacement properties, and a total of 180 days from closing to acquire the replacement property — and must identify that replacement property prior to midnight on the 45th day!
In exploring your future plans in Commercial real estate investment, your trusted Commercial real estate agent may ask you directly: What are you going to do with the profits?
One good reason to implement 1031 is the increase in your assets and income — and the fact that there is no limit to how many times you can “roll over!” As with any IRS stipulation, it helps to have an expert explain the actual implementation. You want to be sure that all your options are presented and explored.
Commercial real estate investment is about profitability — immediate or potential. If you are an experienced investor, you may use 1031 all the time. But if you are new at it (or are just beginning to consider taking the plunge into Commercial real estate) why not start with a thorough investigation of the investment and reinvestment process with an expert? It’s certainly better to begin with insight on the many strategic options available.
Learning by trial and error happens all the time! Learning, after the fact, that you could have protected your profits more wisely — well, that also happens. But it doesn’t have to. Discuss 1031 and other smart strategies with your professional Commercial real estate agent — before you make your next move!
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1031 exchanges ... huh? - Posted on 4/21/2017