Let Pifer's Auction and Realty professionals guide you in deferring capital gains tax on property you sell by finding appropriate replacement property to suit your needs. Whether you are looking to plan an exchange far in advance, or are facing processing time constraints, we have the experience and available properties to suit your needs.
Section 1031 of the Internal Revenue Code enables any real property owner who sells property, to reinvest the proceeds of the sale in ownership of like-kind property, and defer paying capital gains tax on the proceeds. No income tax is paid when business or investment property is exchanged for property of "like kind".
Generally speaking, you should consider a 1031 exchange if you are selling property that will net a gain upon sale, either property that has appreciated in fair market value, or property that has been substantially depreciated for tax purposes.
Under Section 1031, the following rules must be met to qualify for a 1031 exchange:
- The real property that you look to exchange must be held for productive use in a trade or business or as an investment, and must be exchanged for property of "like kind." Any real property exchanged for other real property should qualify as like kind.
- During the exchange period, the seller must avoid the receipt of any of the sale proceeds. This also includes any economic benefit derived by those proceeds. Any proceeds from the sale must be held in escrow by a qualified intermediary during the exchange period. A qualified intermediary may not be any agent or an employee of the seller. Attorneys, accountants, real estate agents and brokers, or investment bankers who have had a relationship with the seller during the past two years period are not qualified to hold sale proceeds.
- All cash proceeds from the sale must be reinvested in the replacement property. Any proceeds that you retain will be taxable.
You must notify the intermediary of suitable replacement properties on or before the 45th day following the date of sale. You may choose from three options when identifying replacement property:
3 Property Rule: You may identify any three properties as possible replacements for the property you sold.
200% Rule: you may identify any amount of properties as possible replacements as long as the total value of those properties does not exceed 200% of the value of the property you sold.
95% Exemption: You may identify any amount of property as possible replacements as long as you end up purchasing at leat 95% of the total value of all properties you identified.
The replacement property must be received by the taxpayer on or before 180 days after the date of the closing of the relinquished property.
Like Kind Property Includes:
- Undeveloped Land
- Farm/Ranch Land