Traverse City Michigan Real Estate

Learn More about 1031 Like-Kind Exchanges and Resources in the Traverse City Michigan Region:

Like 401K, 1031 is becoming a common term among Real Estate Investors.  Simply put, it refers to a section of the tax code that allows tax deferral on capital gains.  Effectively, it allows investors to accumulate more wealth.

 

Here is an example that demonstrate how Like-Kind Exchange works:

http://onlineoffice.cbgreatlakes.com/PublicStorage.c?ID=89a30e4b-ba37-4807-b994-f35bc56e057f

 

Generally, these transactions require: a tax professional, an attorney, a qualified intermediary and a real estate professional to complete successfully.  I do not claim to be a tax professional or an attorney but it is my understanding that when transacted properly, fees and commissions can be deducted. 

How 1031 tax treatment began:

Starker Case Law:

http://www.timbertax.org/research/caselaw/court_cases/s/starker1/

 

Here are some tax forms and instructions that will provide insight:

Like-Kind Exchanges Under IRC Code:

Section 1031

http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031

 

1040 Schedule D – Capital Gains and Losses:

http://www.irs.gov/pub/irs-pdf/f1040sd.pdf

 

 

Sales and Disposition of Assets:

Publication 544

http://www.irs.gov/pub/irs-pdf/p544.pdf

 

Sale of Business Property:

Form 4797

http://www.irs.gov/pub/irs-pdf/f4797.pdf

 

 

Some Useful Terms:

  • Like-Kind Property
  • Deferred Exchange
    • http://www.exeter1031.com/article_brief_overview_1031_exchange.aspx
    • The 1031 Exchange allows you to sell one or more appreciated assets (generally rental or investment real estate, but could be non-real-estate) and defer the payment of your capital gain taxes by acquiring one or more replacement properties.  1031 Tax Deferred Exchanges allow you to keep 100% of your money (equity) working for you instead of paying (losing) about one-third (1/3) of your funds (equity) to taxes. 
    • There are, of course, very specific requirements that you must follow so that your sale transaction will qualify for 1031 Tax Deferred Exchange treatment under Section 1031 of the Internal Revenue Code (tax code).
  • Reverse Exchange
    • http://www.investopedia.com/terms/r/reverse-exchange.asp
    • A type of property exchange wherein the replacement property is acquired first, and then the current property is traded away. Reverse exchanges were created in order to help buyers who found a new property that they would like to purchase before they were able to trade in a current property.

      The opposite of a reverse exchange is a deferred exchange.
  • Relinquished Property
  • Replacement Property
  • Qualified Intermediary
    • http://apiexchange.com/index_main.php?id=8&idz=38
    • The entity who facilitates the exchange; Defined as follows: (1) Not a related party (i.e. agent, attorney, broker, etc.) (2) Receives a fee (3) Receives the relinquished property from the Exchanger and sells to the buyer (4) Purchases the replacement property from the seller and transfers it to the Exchanger; Asset Preservation, Inc. (API) is a "Qualified Intermediary."
  • Boot:

 

Useful information:

Ten Things to Know about 1031 Exchanges

Forbes Article authored by Robert W. Wood:

http://www.forbes.com/2010/01/26/capital-gains-tax-1031-vacation-home-personal-finance-robert-wood.html

 

Definitions:

https://www.1031exchangemadesimple.com/glossary.html

 

Another Source of Information:

http://apiexchange.com/index_main.php?id=8&idz=26

 

Newsletter – Traverse City, MI CPA /Stephen D Gallagher

http://www.sgallaghercpa.com/newsletter.php

 

 Videos:

https://www.youtube.com/watch?v=VbsUiNExETQ&feature=g-upl

 

https://www.youtube.com/watch?v=bOv07fHFvYo

 

https://www.youtube.com/watch?v=eneUi_KrNnI

 

 

 

 

Local Exchange Attorneys:

http://attorneys.lawinfo.com/real-estate-tax-deferred-exchanges/231/

 

Local Exchange Tax Professionals:

http://onlineoffice.cbgreatlakes.com/PublicStorage.c?ID=4e2bbbba-2b35-44ff-bae8-686a42d0e25e

 

Examples of Like-Kind Exchanges:

  • Rental House = Vacant Land
  • Rental House = Rental House
  • Rental House = Shopping Center
  • 1 Rental House = 1 Rental House + 1 Shopping Center
  • Certain types Personal Property can qualify
  • Personal Property:
    • Investment Art = Other Investment Art

 

These are NOT Examples of Like-Kind Exchanges:

  • Inventory or stock in trade
  • Stocks, Bonds or Notes
  • Securities or Debt
  • Partnership Interests

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David Mcphail

David Mcphail

Sales Associate
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