Section
1.1031 of the Internal Revenue Code laid out in detail the procedure
for turning a sale and purchase type transaction into an “EXCHANGE”…and
these new rules let owners of certain types of “like kind”
Real property to sell that property and buy other “like
kind” property without paying the Capital Gains Tax. And
the “like kind” provision was (and IS) quite broad
in that it includes Land, Rental, and Business property, any of
which, can be exchanged for the other.
ONE
IMPORTANT DETAIL OF THE IRS RULE is that those who are exchanging
“like kind” properties (called the “Exchangers")
MUST use a safe harbor to hold the proceeds while the exchange
is in progress. The same rule spelled out what those safe harbors
were.
The
only practical safe harbor for most "Exchangers" is
a "Qualified Intermediary."
A
QUALIFIED INTERMEDIARY holds the proceeds from the sale of the
Relinquished (sold) Property and cannot be related to the Taxpayer.
Intermediary must be registered with Nevada Real Estate Division
for transactions in Nevada. Taxpayer must enter into Exchange
Agreement prior to the closing of the Relinquished Property. S/he
is the "middle person" who facilitates the exchange
while protecting the proceeds from the sale of the relinquished
property and transfers the proceeds to the appropriate recipient
of the transaction.
1031 EXCHANGE MEMO TO INVESTORS:
For Real Estate Investors, the Like Kind EXCHANGE can be a real
boon.
•
FIND a QI with whom you feel comfortable establishing a relationship.
• MAKE SURE that Qualified Intermediary
can give you a complete explanation of what 1031 Exchange is and
how you can use the 1031 Like Kind Exchange to save you money
on Capital Gains Taxes.
