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Significant Tax Savings
Owners of real estate
with latent capital gains can now sell their property tax-free. Several
simple rules apply to qualify for this tax-free treatment under Section 1031 of the
Internal Revenue Code. |
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The owner must reinvest all net
proceeds in one or more
replacement properties. The owner may receive partial tax-free
treatment in the event that the net sale proceeds are not fully reinvested.
Both relinquished and replacement
properties must be
rental property or "otherwise held for either productive use in the owner's trade or
business, or for investment." Personal use property is not
eligible.
Replacement property must be
"identified" within 45 days after
the closing of the relinquished property.
The replacement property closing must take
place
within 180 days after the closing of the relinquished property, or by the owner's final income tax filing date, whichever is sooner.
A Qualified Intermediary is used to
accommodate the exchange
and all net sale proceeds are held in a qualified escrow account
for the period of time between the closing of the relinquished property and
the purchase of the replacement property, which is termed the
"Exchange Period."
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