1031 Exchange: What is required to be successful?

Simply put, an exchange allows you to sell your investment property, while at the same time deferring capital gains taxes by reinvesting 100% of your equity into another investment property of equal or greater value.

The true strength of an exchange is the ability to meet investment objectives without losing equity to taxation. This is known as leveraging, a method of acquiring real estate which helps you purchase property many times the value of your initial investment.

The main requirement for a successful exchange is that your property or business assets must have been used in a trade or business, or for investment purposes, and be exchanged for like-kind replacement investments.
Things to keep in mind:

• You are never required to pay capital gains taxes on the sale of property if you plan to reinvest the total amount.
• Dollars saved in taxes allows you as the investor to purchase 4-5 times as much real estate.
• The law sets a 45 days time period to identify the replacement property and 180 days to complete the entire exchange.
• Exchanges can range anywhere from a simultaneous exchange of two properties to complex, multi-party transactions involving construction and/or reverse exchanges.  (Consult a Qualified Intermediary such as MEGA 1031 to find out what type of exchange is best for you.)

By using a 1031 Exchange, you can maximize your capital by deferring taxes that would otherwise be incurred on an outright sale of your property. You can use the entire amount of the equity from the exchange to acquire substantially more replacement property.

Properly structured and administered, an exchange becomes an invaluable investment strategy. 

Here are just a few of the benefits to this powerful investment strategy:

Tax Savings: Federal and State taxes combined can be as high as 28% of the capital gain on an investment property.

Leverage: Every dollar you save in taxes allows you to augment your investment portfolio through acquisition of real estate worth many times your original purchase.

Income: Increase your cash flow by exchanging out of bare lands and into an income-producing property.

Consolidation: Exchange from several management-intensive properties into a larger property with on/off-site management.

Estate Planning: By using a 1031 Exchange, you can avoid paying capital gains until your death. At that point, your heirs may also continue to avoid the paying capital gain taxes because of the stepped-up basis that they may obtain in the property.

The following parties are involved in a typical Exchange:

• Taxpayer – person who has property and would like to exchange it for a new property. Each Exchange involves just one taxpayer.
• Buyer – person with monies who wants to purchase the Taxpayer's property.
• Seller – person who owns the new property that the Taxpayer wants to acquire for the Exchange.
• Qualified Intermediary – person or company who facilitates the Exchange by buying and then reselling the properties at an agreed-upon price in return for a fee. This person or company never begins or ends the Exchange owning any property.

When you are ready to choose a Qualified Intermediary to assist you in your next tax deferred exchange, remember MEGA 1031 has the highest level of account security, expertise and service in the industry.