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Do I need an accommodator if my sale and purchase happen at the same time?
In most cases, yes. If you transfer money from your sale
escrow directly to your purchase escrow, this is not an exchange. You will be
taxed on the proceeds. To the I.R.S., you are still in control of the funds.
Concurrent exchanges are possible, but generally require that your
"down-leg" buyer purchase your "up-leg" property and then
exchange with you. These exchanges are extremely difficult to complete. It is
best to use an accommodator.
Can I purchase more than one property as my
replacement?
Yes, you may purchase an infinite number of properties with
your down-leg proceeds, as long as they are "like-kind" and properly
identified. All
properties must be received within the same 180-day exchange period.
If I enter an agreement to exchange, can I withdraw before completing the
exchange?
Yes, you can, but you will be taxed on the gains. There is,
however, a waiting period before funds are available.
Can I exchange from one property into another property that I already own?
No, this is not allowed by the
I.R.S.
How similar does the replacement property need to be to?
See definitions of "like-kind". Many people chose
to exchange passive investments, such as vacant land, into active
income-producing investments, or vice-versa. Possibilities are numerous.
If the property is held by more than myself, can I decide to exchange
properties even though my partners do not?
Yes, each investor may make his/her own independent decision
to pay taxes now, or to exchange up. Careful consideration needs to be
given in the event that the property is held by a partnership, however.
If I lived in the property before I rented
it out, is there some kind of exemption from paying capital gains taxes?
Yes, you may qualify for an income exclusion of
up to $500,000.00 on this gain as long as you lived in the house for 2 of the last 5
years before the sale. Please review the IRS publication regarding Excluding
the Gain to verify if you qualify. If you do qualify for
the principal residence exclusion, you do not need to do a section 1031
exchange.
Your capital gains tax burden is
calculated by subtracting the adjusted
basis of the property from the adjusted sales price of the property and
multiplying this amount by the applicable tax rates. In addition, you may
be required to pay state income tax and a percentage of the depreciation you
have taken on the property since you bought it. For a basic reference,
visit our Example page.
How is the Section 1031 Exchange reported
on my Tax Return?
The
exchange is reported on Form 8824. Follow this link
for a downloadable
version of this form 2002 Form 8824 Like-Kind Exchanges ( 35K) Adobe PDF
Copyright © 2003 Executive 1031 Exchange Services. All rights reserved.
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