Many people talk about avoiding capital gains tax when selling a property. Maybe you’re wondering how you can do the same. The accurate term is Tax Deferred Exchange – or 1031 Exchange. If you’re considering one, you definitely want the help of a 1031 exchange expert.
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Today we’re talking with David Moore, co-founder of Equity Advantage, a firm that specializes in tax-deferred investments, in particular IRS section 1031 exchanges.
In 1031 Exchanges, How Can I Avoid Capital Gains When I Sell Property?
David Moore: Well, we don’t. And the IRS doesn’t like us talking about avoiding, so we’re going to talk about tax-deferred exchanges. You’re deferring the taxes, too.
David Moore: So, when you’re disposing of a piece of property that’s been held for investment, if you’ve got something else you’d like to buy that’s of like kind and you would like to defer all your tax, we simply structure a 1031 Exchange. That’s going to allow the person, if they meet all the criteria to defer all capital gains tax in that transaction. And as I said, some people reference this as a “tax free exchange.” It’s not. It’s tax deferred. At some point, you’re going to realize the gain and have to pay the tax on that deferral.
When Should I Contact A 1031 Exchange Expert?
David Moore: Great question, and it’s one I’d say, “The sooner the better.” Because what happens, even though this code has been around since the 20s, we still have people contact us after a transaction has closed. Most states purchase sale agreements actually include some type of 1031 cooperation provision, but the problem is that it’s sort of a boilerplate provision. It’s not something where you’re checking the box that you’re going to do it or not do it. So unless escrow is put on notice – unless people are aware that you’re going to make this exchange happen – nobody’s going to get it done for you.
David Moore: So it’s really important from the deal’s inception. A lot of times people ask: “Hey David Moore, when would I like to know about it?” And it’s when you’re listing the property. If you’re first making that decision, understand what your tax consequence is going to be on a disposition, decide whether you want to pay that tax, and then the biggest trap within the exchange is time. So you want to be looking for that replacement from the first time you decide to sell so you have an idea, minimize the impact of the tax, see those timelines that 1031 deals with.
When you are thinking of doing a 1031 Exchange, the sooner you consult the professionals at Equity Advantage, the better. Give David Moore and his team of experts a call today – 503-635-1031