Sheltering taxes can be tricky but also beneficial. Finding a CPA with experience in commercial
real estate is important to effectively protect yourself. A 1031 exchange is a tool often used to defer
taxes and in my first blog post “1031 Exchange Basics”, I talked about
the different types of 1031 exchanges. This blog
will focus on the general rules of the Internal Revenue Service’s code Section
1031 that taxpayers must meet when identifying a replacement property.
Three (3) Property
Rule – The taxpayer may identify up to three potential replacement
properties, without regard to their value.
200% Rule –
Any number of properties may be identified, but their total value cannot exceed
twice the value of the relinquished property.
95% Rule –
The taxpayer may identify as many properties as he wants, but before the end of
the exchange period, the taxpayer must acquire properties with an aggregate
fair market value equal to at least 95% of the aggregate fair market value of
all the identified properties.
When selecting a replacement property, the funds from a 1031
exchange cannot be used for a personal residence (unless it has been a rental
property for 2 years), notes, an interest in a partnership, Certificates of
Trust, or homes held for sale by speculation builders (among others).
Knowing the rules & regulations, using a Qualified
Intermediary, and having the necessary professional help can secure the tax
shelter and benefits of a 1031 exchange.
For more information or an exchange checklist
call Kurt Egan at 608-752-6325 Ext. 4.
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