NAFEP 1031 Exchange Services for Deferral of Capital Gains
What is a 1031 Exchange?
A 1031 Exchange is a method by which a property owner exchanges one or more relinquished properties for one or more replacement properties of "like-kind", while deferring the payment of federal income taxes and possibly some state taxes on the transaction. The 1031 Exchange is a tax deferred strategy that accomplishes 100% deferral of capital gains indefinitely.
There are several variations of a 1031 exchange, but the most common and practical application of the 1031 Exchange is what is known as a 1031 Starker exchange. The 1031 exchange allows for a property owner to exchange their property for another property and defer capital gains taxes on the transaction.
By using a 1031 Exchange for the deferral of capital gains taxes, you are able to preserve the value of your real estate which enables you to secure more lucrative properties. This process of trading up and preservation are part of the wealth building cycle for real estate investors and wealth builders
Benefits of using a 1031 Exchange
- Allows for a full and indefinite deferral of capital gains
- Enables wealth building
- Enables trading up to more desirable properties or assets
- Enables the ability to generate new depreciation when old property has reached the end of the depreciable life
Issues and Challenges with a 1031 Exchange
- Does not provide a exit strategy from real estate
- Keeps money illiquid for retirement planning or business development
- Can be difficult to find suitable property in 45 days
- Additional monies or other assets (i.e. "boot") may be required to complete the transaction
- Hi-failure rate for meeting the IRC 1031 timeline which forces taxes on the gains
How Does a 1031 Exchange Works
The 1031 exchange consists of two (2) phases: 1) Sell Current Asset; 2) Find Replacement Property. The steps required for each phase are described as follows:
Phase I - Sell Current Asset
Phase 2 - Find Replacement Property
- Find a new property (45 days)
- QI Transfers funds to escrow
- Buy new property (Total 180 days to close)
Importance of the Qualified Intermediary (QI)
In order to meet the requirements of IRS code section 1031 it is required that an independent, unrelated, third party take possession of your funds. This is required in order to prevent what is known as constructive receipt of the funds. If you were to take possession of the monies at anytime in any form, your deferral of capital gains would be disallowed and taxes would be due in the year of disposition of the property.
The QI selected must be a trusted, and responsible party or entity. The QI will be holding your monies for up to 180 days and they must be relied upon to return those monies when you instruct them.
How can a 1031X help you?
Click Here to use this calculator to see how a 1031X can help you.
Additional Tools
Click Here to get the 1031 Exchange window dates.
Why Use NAFEP as your QI
NAFEP has a long history of dealing with client's Trusts, assets, 1031 exchanges and estates. We have helped thousands of clients with their estate plans and real estate transactions. We are also the nations leading provider of tax advantaged real estate and capital gains deferral strategies through our self directed installment sales, self directed IRA and self directed 401(k) programs. This makes us well qualified to assist you in understanding and navigating the issues associated with your 1031 exchange.
It is because of this experience in real estate transactions and acting as a trusted fiduciary that we are the right choice for handling your 1031 exchange. Additionally, upon receipt of your monies, we place the monies in Trust with American Estate and Trust, LC (AET).
American Estate and Trust is a registered and licensed Trust Co. and IRA custodian. As such they are a licensed and bonded entity. The holding of your monies in Trust insures that your monies will be handled and managed by a Trusted and regulated entity. This provides you with the peace of mind you need while completing your 1031 exchange transaction.
Need More Info
Click here to view an overview presentation on the 1031 Exchange.
For more information on the 1031XSM 1031 Exchange product.
Call one of staff advisors at (801) 266-9900, or to request that someone contact you, send an instant email message by submitting the information below.