"Our Clients Success is Our Business"
Camelback Real Estate Investments
4848 N. 73rd St.
Scottsdale, AZ 85251
ph: 602-334-8546
alt: 480-278-9007
nathan
Code Section 121 applies to your personal residence. It provides for an exemption of $500,000 of gain for a married taxpayer on the sale of a primary residence (or $250,000 of gain for a single person). To qualify for Section 121, the taxpayer(s) needs to both own and use the property as a primary residence for at least 2 of the last 5 years.
On the other hand, Code Section 1031 applies to any real estate held for investment purposes, like rental houses, commercial property, or bare land. It allows the taxpayer to defer, or postpone, the payment of the capital gains tax by rolling the gain from the sale of an old investment property forward into the purchase of a new investment property.
Used together, these two code sections are very powerful. Be sure to consult a 1031 Expert if you are considering a tax-deferred exchange transaction
When you sell property, you pay tax. But Section 1031 (§1031) of the Internal Revenue Code (IRC) lets you defer the tax. A 1031 Exchange (aka: Starker
exchange, tax-free exchange, likekind exchange, delayed exchange, etc.) is a specific transaction that joins the sale of an Old Property and the purchase of a New Property for the purpose of deferring taxes.
§1031 is an actual IRS code, NOT a “loop-hole.” Where loopholes are technicalities around the law, §1031 IS THE LAW, and is therefore safe and legitimate for anyone who meets the requirements. Qualified properties can be bare land, rentals, commercial buildings, and homes other than your primary residence. You can also use §1031 to buy and sell oil & gas interests, mineral
rights, and working or royalty interests.
§1031 is a great tool when a property has increased in value or been depreciated for tax purposes. It increases your flexibility, leverage and buying power, and lets you change, diversify, or consolidate your investments.
1) If both your old and new properties qualify as investment
or business use, you can exchange nearly any type of real estate.
2) You have 45 days from the
closing of your sale to list the
properties you may want to buy. There are no exceptions to the deadline.
3) From the sale closing date, you have 180 days to close on the purchase. There are no exceptions.
4) The IRS says you must use a
Qualified Intermediary. The QI
cannot be your friend, employee,
broker, accountant or attorney.
5) You must purchase and take
title to your new property
exactly as you held title to your old property.
6) You must buy a property equal
or higher in value than the one
you sold, and reinvest all of the cash proceeds from your sale.
Copyright 2011 Camelback Real Estate Investments. All rights reserved.
Camelback Real Estate Investments
4848 N. 73rd St.
Scottsdale, AZ 85251
ph: 602-334-8546
alt: 480-278-9007
nathan