Draper, Utah, 1031 Exchanges
1031 Property Exchange Attorney
The sale of a business or investment asset, whether real estate or equipment, can create a large tax liability. However, a properly structured exchange under Internal Revenue Code §1031 allows both businesses and individuals to defer the recognition of the capital gains or other taxes that would otherwise be due. In general, most tax deferred exchanges are structured either as a real property or a personal property exchange. Real property exchanges include only interests in real property, while personal property exchanges encompass virtually all other types of property.
To learn more about a 1031 like kind exchange, contact a Draper, Utah, 1031 property exchange attorney.
Requirements for 1031 Exchange
There are several requirements that must be met to qualify for the tax deferred treatment under §1031.
- You must hold both the property traded and the property received for business or investment purposes.
- The property traded and received must not be held primarily for sale, such as inventory.
- The properties must be tangible. This means it cannot be stocks, bonds, notes, securities, evidences of debt, or partnership interests.
- The properties must be of a like kind. (E.g. real estate for real estate.)
- Timing rules must be satisfied:
You must make a written identification of the “replacement” property within 45 days of the transfer of the “exchange” property.
You must receive the “replacement” property by the earlier of 180 days after the transfer of the “exchange” property or the due date of the tax return for the year of transfer.
The Process for a Like Kind Exchange
A 1031 tax free exchange can be either simultaneous or deferred. A simultaneous exchange takes place when you trade your property for property owned by another. Simultaneous exchanges are rare. In a deferred exchange, property is transferred to a qualified intermediary. The qualified intermediary in turn sells your property and purchases the new property on your behalf. Our law firm also provides services as a qualified intermediary.
Examples of 1031 Tax Deferrals
We represent clients who inherit land or invest in property. Contact our firm if you are in a situation similar to the following examples.
Example 1
John inherited a parcel of land from his father twenty years ago. At the time he inherited the land, it had a fair market value of $10,000.00. Today it is worth $350,000.00. A developer has recently contacted John about purchasing his land. John would like to use the sale proceeds to purchase an apartment building that is valued at $500,000.00. He uses a qualified intermediary, and thereby defers the payment of capital gains tax in the amount of $51,000.00. Below is a chart that compares an outright sale of the land versus a 1031 exchange.
SALE | Example | EXCHANGE |
$350,000 | Sales Price | $350,000 |
($21,000) | Closing Costs | ($21,000) |
($51,000) | 15% Capital Gains Tax | 0 |
$278,000 | Available to Reinvest | $329,000 |
Example 2
Sue has decided to sell a duplex that she purchased as an investment property ten years ago for $70,000.00, and is now worth $750,000.00. Her real estate broker has found an office building valued at $1,000,000.00 that she would like to purchase. She uses a qualified intermediary, and thereby defers payment of capital gains tax in the amount of $102,000.00. Below is a chart that compares an outright sale of the duplex versus a 1031 exchange.
SALE | Example | Exchange |
$750,000 | Sales Price | $750,000 |
($45,000) | Closing Costs | ($45,000) |
($102,000) | 15% Capital Gains Tax | 0 |
$603,000 | Available to Reinvest | $705,000 |
To speak with an attorney about a 1031 tax deferred exchange on your investment property, contact a Draper, Utah, 1031 exchange lawyer at our firm.
Free half hour consultations. Credit cards accepted.
The Law Office of Derek A. Coulter, P.C.
11576 S. State St., Suite 503
Draper, UT 84020
Phone: (801) 501-0321
Toll Free: (866) 769-2859
Fax: (801) 307-0318
Email
The Law Office of Derek A. Coulter, P.C. offers legal services in 1031 exchanges, small business representation, and insurance disputes in Utah. We serve clients in Draper, Utah, and the surrounding cities of Bountiful, Cedar City, Ogden, Orem, Park City, Price, Provo, Richfield, Salt Lake City, Sandy, St. George, Vernal, and throughout Carbon County, Davis County, Iron County, Salt Lake County, Sevier County, Summit County, Tooele County, Uintah County, Utah County, Wasatch County, Washington County, and Weber County.
