
1031 EXCHANGE SD
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KC is connected to a qualified intermediary who has a wealth of knowledge and proven track record.
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What is Internal Revenue Code Section 1031?Internal Revenue Code (IRC) section 1031 of the Federal tax code has allowed taxpayers to swap business-use or investment assets for other like-kind business-use or investment assets since 1921. This allows the taxpayer to do this without having to recognize taxable gain on the sale of the old assets. As a result, the taxes that would have otherwise become due from the transaction are postponed. These can include relatively straightforward deals involving real estate for business, agriculture, and leasing purposes, as well as more intricate deals involving trucks, trailers, containers, railcars, aircraft, heavy machinery, animals, and other assets.
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Why complete a 1031 Exchange?The benefits of completing a 1031 Exchange are that you can dispose of investment or business-use assets, as well as acquire replacement property and defer the tax that would usually have been due upon the sale.
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What does Section 1031 permit me to do?According to section 1031. a taxpayer may swap business-use or investment assets for other like-kind business-use or investment assets since 1921, all without having to recognize a taxable gain on the sale of the original assets. This postpones the taxes that would have otherwise been due from the sale.
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What is a Like Kind Exchange?Like Kind Exchanges, also known as tax deferred exchanges, are defined by Internal Revenue Code (IRC) section 1031. A 1031 Tax Deferred Exchange offers taxpayers one of the last great opportunities to build wealth and save taxes.
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What can I defer with a 1031 Exchange?With a 1031 Exchange, investors are able to defer: Federal capital gains tax State ordinary income tax Net investment income tax And depreciation recapture on the sale of Investment property if certain criteria are met.
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Why should I apply for a 1031 Exchange?There are many reasons to do a 1031 Exchange, such as: Defer Taxes: Federal, State & Depreciation Recapture Diversify or Consolidate a Real Estate Portfolio Increase Cash Flow Switch Property Types (Land, Industrial, Multi-Family, Office, Retail, Residential, Easements) Get Into Other Real Estate Markets (Exchange anywhere within the U.S. & Territories) Build & Preserve Wealth Set up Heirs for the Future (Estate Planning: Stepped Up Basis) Increase Purchasing Power
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When will I recognize gain?As a taxpayer, you will recognize gain (and also pay tax on unused funds) when you “cash out” of your property.
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When will I have to pay tax on unused funds?When you eventually “cash out” of your property.
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Can I buy a different type of property than the one I'm selling?In short, you can buy ANY type of property - it does not have to be the same type as the property you are selling. You have the flexibility to purchase a diverse range of businesses or investment real estate. Whether it's selling a rental house to acquire apartments, commercial properties, industrial spaces, mini storage facilities, vacant land, agricultural ventures, and more, the options are wide-ranging.
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What is a Reverse Exchange?This is when you buy the replacement property first. You may do this, but it is more complex. Contact us today to walk through all of your options.
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Do I have to buy one of the properties I've identified?Yes, you do. Within the initial 45 days, you have the flexibility to modify your identified choices. However, once this identification period has lapsed, you are restricted to purchasing properties solely from the identified list. No substitutions or alterations are allowed after the 45th day.
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Can I move into the Replacement Property?The acquisition of the Replacement Property should be undertaken with the purpose of it serving as a business or investment property. In 2008, the IRS established a safe-harbor (Rev. Proc. 2008-16) outlining the treatment of Replacement Property during the two-year period post-exchange to safeguard the exchange. While there may be a prevailing notion that conversion to personal use is permissible after this period, any such conversion should be thoroughly discussed with your tax advisor beforehand.
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Can I rent the Replacement Property to family or friends?Yes; however, they are required to remit fair market rent.
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Can I buy the Replacement Property with someone else?Certainly, you can, but it's important to acquire the property as tenants-in-common, ensuring that your ownership share is equal to or greater than the property you sold. Additionally, it is advised not to establish a partnership or a multiple-member LLC for property ownership. The arrangement for co-owning property after an exchange should be carefully discussed with your tax advisor.
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Can I buy the Replacement Property from a related party?No, unless you can meet specific and restricted exceptions. Please contact us for more information about these exceptions.
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Is it possible for me to receive reimbursement for the improvements I made to the property before selling it?The actions taken with the property represent a distinct matter from the exchange process. Receiving cash back at the close of escrow to "repay yourself" is likely to be treated as taxable boot. Nevertheless, your tax advisor may have the ability to structure the transaction in a way that offsets the taxable boot.
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Is it permissible to utilize funds from the exchange to enhance the new property after its purchase?The conclusion of the exchange for a specific property occurs on the day you take title to it. Any remaining cash is considered taxable boot. An alternative is a build-to-suit or improvement exchange, in which we, as the intermediary, acquire title to the property to facilitate improvements before you assume ownership. It's important to note that this is a more costly and intricate transaction.
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What is a Qualified Intermediary / QI?The majority of 1031 exchanges are not just two-person swaps; rather, they involve distinct buyers and sellers. Tax regulations mandate the use of an impartial third-party Qualified Intermediary (QI) in certain situations. During the exchange, the QI keeps the sale profits for the taxpayer's benefit, distributing cash for the acquisition of like-kind replacement property and giving the taxpayer any remaining monies at the conclusion of the exchange.
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Why do I need a Qualified Intermediary (QI) for a 1031 Exchange?An essential component of a 1031 exchange is selecting a Qualified Intermediary (QI) to manage your exchange. Non-simultaneous exchange tax regulations necessitate the involvement of an impartial third-party Qualified Intermediary (QI). The services of a QI include to complete the required paperwork, safely keep your exchange funds, and purchase your new investment property prior to the transfer of the old investment property.
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How can I find a Qualified Intermediary (QI) for a 1031 Exchange?Look no further! My exceptional network includes handpicked, highly recommended QI's who will make the entire process as smooth as possible.
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What does a QI (Qualified Intermediary) do?The QI holds the sale proceeds for the benefit of the taxpayer during the exchange, disbursing funds for purchase of like-kind replacement property, and returning any unused funds to the taxpayer at the end of the exchange.
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Why should I use KC Rentfro's recommended QI?There are several reasons I recommend IPX1031 for 1031's, including: Owned by Fidelity National Financial (NYSE: FNF) Nationwide locations $100M Fidelity Bond $30M E&O Insurance $50M Written Performance Guaranty Segregated Bank Accounts Knowledgeable Staff Attorneys & Certified Exchange Specialists® Full Service Qualified Intermediary Superior Customer Service
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Can I do a 1031 Exchange without a Qualified Intermediary (QI)?No. A Qualified Intermediary (QI) is an essential component of a 1031 Exchange. To prevent the Relinquished Property from being subject to taxation, it is advisable to employ an intermediary in nearly every 1031 transaction. Moreover, the Exchanger should establish written agreements with the Qualified Intermediary (QI) prior to the sale of the Relinquished Property.
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What is the 1031 Exchange Time Frame?You have 180 days to complete your 1031 Exchange.
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What is the 1031 Exchange Timeline?Following the closing of the relinquished property, the Exchanger has a 45-day window to nominate (identify) potential replacement properties and an additional 180 days to complete the acquisition of the replacement property. The entire exchange process spans 180 days in total, rather than being a sum of 45 days and 180 days.
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Can I buy the replacement property first?Yes, you may do so, this is called a "Reverse Exchange." This is more complex, but contact us today and we'll walk you through all of your options.
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Can I get an extension on the 45 day identification period?Except for cases of eligibility for an extension related to a federally declared disaster, the IRS does not offer provisions for extensions or exceptions. This applies even when the deadline coincides with a weekend or holiday; there are no extensions granted to the next business day. To secure additional time, the advisable approach is to initiate the search for your Replacement Property well in advance of the closing of your sale property.
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What are the criteria for a 1031 Exchange?To qualify for a 1031 Exchange, you will need to meet certain criteria, including: Buy replacement property for equal / greater than sold for and reinvest all proceeds Identify replacement property within 45 days of close of sale Purchase replacement property within 180 days of close of sale You must Sell and Buy property that is considered “like-kind” to each other All processes must be handled by a Qualified Intermediary (QI)
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What are the 1031 Exchange Rules?To qualify for a 1031 exchange, you must adhere to several rules and requirements: Like-Kind Property: The property you sell and the property you acquire in the exchange must be of like kind. This typically means both properties must be real estate, but there is some flexibility. For example, you can exchange residential property for commercial property. Qualified Intermediary (QI): To facilitate a 1031 exchange, you must use a qualified intermediary, also known as an accommodator. The QI is responsible for holding the sale proceeds and ensuring they are properly reinvested. Same Taxpayer: The taxpayer who sells the relinquished property must be the same as the taxpayer who acquires the replacement property. Timing: You have a limited timeframe to complete a 1031 exchange. You must identify potential replacement properties within 45 days of selling the relinquished property and acquire the replacement property within 180 days of the sale or before your tax return due date (including extensions) for the year in which you sold the relinquished property, whichever comes first. Value and Equity: To defer all capital gains tax, the value of the replacement property must be equal to or greater than the relinquished property, and you must reinvest all the net equity from the sale. If the replacement property is of lower value or you take cash or other property not considered like-kind, you will have to pay capital gains tax on the difference. Hold for Investment: Both the relinquished and replacement properties must be held for investment or for productive use in a trade or business. You cannot use a 1031 exchange for personal property or property primarily held for sale. Same Titleholder: The taxpayer's name on the title of the relinquished property must match the name on the title of the replacement property. Proper Identification: You must follow IRS identification rules when identifying potential replacement properties. The most common rule is the "3-Property Rule," where you can identify up to three replacement properties, regardless of their value, or the "200% Rule," where you can identify any number of properties as long as their total fair market value does not exceed 200% of the relinquished property's value. No Constructive Receipt: You cannot have constructive receipt of the sales proceeds. This means you should not have access to the funds during the exchange process, and they should be held by the qualified intermediary. Not Personal Property: Personal property is generally not eligible for a 1031 exchange. However, personal property that is incidental to the real property (e.g., furniture in a furnished rental property) can sometimes be included. These are the fundamental rules for a 1031 exchange, but it's essential to consult with our qualified tax professionals to ensure compliance with the specific San Diego requirements and to navigate the complexities of the exchange process. The rules and regulations change over time, and our experts are always on top of the current tax laws.
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Does the owner of the new property need to be the same as the previous property?The individual who possesses the relinquished property must be the identical taxpayer who assumes ownership of the replacement property.
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How do I find a 1031 Exchange company in San Diego?Look no further! We have all the expertise you need to complete a 1031 in San Diego.

Your San Diego Realtor & 1031 Expert
KC RENTFRO
CA DRE #01932807
I am a licensed broker associate with Swell Property in Encinitas. With an unbeatable understanding of the local area, and an excellent network of industry experts, I am readily available for any and all 1031 Tax Deferred Exchange needs.
You can count on me to guide you through this process, provide honest straightforward feedback, and connect you with quality professionals needed to get the job done.
