What is a 1031 Exchange?
1031 Exchange refers to the section of the Internal Revenue Code Section that provides for the tax deferred exchange of real and personal property.
Why Do a 1031 Exchange?
With a 1031 Exchange investors can trade up, consolidate, diversify, leverage or relocate their investments and not be penalized by having to pay either capital gains or recapture (the amount deducted while owning the property is taxable if the property is sold). The taxes are deferred until the investor does a non 1031 Exchange sale or the property goes to the investors estate.
Many investors find themselves requiring a 1031 like kind exchange replacement property and that’s why Orlando is one of the most popular options.
1031 Time frame Rules
There are two key timing rules you must observe in a delayed exchange.
- The first relates to the designation of a replacement property. Once the sale of your property occurs, the intermediary will receive the cash. You can’t receive the cash, or it will spoil the 1031 treatment. Also, within 45 days of the sale of your property, you must designate replacement property in writing to the intermediary, specifying the property you want to acquire.
The IRS says you can designate three properties so long as you eventually close on one of them. You can even designate more than three if they fall within certain valuation tests.
- The second timing rule in a delayed exchange relates to closing. You must close on the new property within 180 days of the sale of the old.
Note that the two time periods run concurrently. That means you start counting when the sale of your property closes.
If you designate replacement property exactly 45 days later, you’ll have just 135 days left to close on the replacement property.
“Like-Kind” is Broad-Based
Most exchanges must merely be of “like-kind”—an enigmatic phrase that doesn’t mean what you think it means. You can exchange an apartment building for raw land, or a ranch for a strip mall. The rules are surprisingly liberal. You can even exchange one business for another.
It’s the #1 family vacation capital of the world.
Orlando offers a unique “turn-key” product to take advantage of the 75+ million visitors each year looking for accommodation.
Investors can leverage their cash into a short term rental property that can generate revenue on an annual basis while appreciating in value.
Basically paying the property off while generating income with the added value of a personal vacation home.