1031 BasicsQ. What is the purpose of a 1031 exchange? A. The purpose of a 1031 exchange is to defer the payment of capital gains taxes that would otherwise be due on the sale of business or investment property - thus leaving the owner with more money to invest in replacement property. A 1031 exchange does not eliminate taxes. It defers taxes and allows the owner to use the deferred tax amount for continued business or investment purpose. Q. Why would I want to defer paying capital gains taxes - they’ll be due sooner or later anyway? A. By deferring the taxes you’ll be giving yourself more cash to invest in a replacement property. You may also be able to defer paying the tax until you are in a stronger tax position. You’ll have to talk to your accountant or tax advisor about finding the right solution for your situation. Q. How does it work? A. There are, of course, IRS rules that must be met to complete a successful 1031 exchange. You should consult your attorney, accountant or other tax advisor to explain these rules. But, in general terms, the owner of business or investment property sells the property and uses the proceeds to acquire replacement property within 180 days. The capital gains tax that would have been due on the sale is deferred, usually until the eventual sale of the replacement property. The owner cannot possess or control the sale proceeds during the period between the sale of the first property and the purchase of the replacement property. During this period, the proceeds are typically held by a "Qualified Intermediary", such as Riverside Bank. Q. What kind of property is eligible for a 1031 exchange? A. Almost any kind of business or investment property qualifies. Land, apartments, office buildings, retail space and other real property are all eligible. If you want to fully defer all capital gains taxes, make sure the replacement property is of equal or greater value than the one you sold. Q. Can I use a 1031 exchange when I sell my personal residence? A. No. You may see your home as one of the most important investments you'll ever make, but the Internal Revenue Code does not consider private residences investment property. Q. How do I complete a 1031 exchange? A. There are five steps to any 1031 exchange.
Q. Do I have to have a Qualified Intermediary? A. Yes. The Internal Revenue Code is very strict about making sure you don’t directly, or indirectly, control the money from the sale during the exchange period. That means you can't even appoint a family member, employee or your personal lawyer or accountant to be in charge of the account. You have to choose an uninvolved third party for the job. While the Code does allow other types of arrangements in certain circumstances, the fact is that almost all 1031 exchanges are facilitated by a Qualified Intermediary. Q. Is there a lot of paper work involved in a 1031 exchange? A. No, but it can be confusing and it must meet IRS regulations. Riverside Bank will provide all required paper work for the Qualified Intermediary Service. 4 Reasons to choose Riverside Bank Qualified Intermediary Service OK, you’ve decided a 1031 exchange is the way to go on your next business or investment real estate transaction. Now you need a Qualified Intermediary service. Here are four reasons to choose Riverside Bank: 1. We’re local and convenient – With offices located throughout Florida, you can turn to your Hometown Bank for personal service, face-to-face meetings, and a real understanding of you and your financial needs. 2. We make it affordable - Our low flat fee covers account set up, depository services and all incoming and outgoing wire transfers, plus all necessary paper work for the Qualified Intermediary Service. 3. We maximize your investment – All proceeds are held in individual high yield money market accounts with 100 percent of all interest paid to you when the exchange is complete. 4. We are full-service - We’re a national bank with years of experience in business and financial transactions. Not only can Riverside Bank take care of your 1031 exchange where your funds will be kept safe, we also offer a complete range of personal and business financial services. If a loan is needed to complete any of the exchange transactions, we can even help with that. To speak with our friendly hometown staff about your 1031 exchange needs please call 1.866.277.7339. |
