Hiring the right real estate lawyer can help you save money when selling real estate. Certain strategies, such as 1031 exchanges, allow sellers to defer paying capital gains taxes on the sale of their investment real estate. The Internal Revenue Code (IRC) allows real estate sellers and investors to defer capital gains taxes if they exchange “like-kind” property. The 1031 Exchange rules are strict, though, and that is why hiring the right real estate lawyer is so important. Consult a residential real estate attorney at Jacqueline A. Salcines, P.A., for 1031 exchanges in Coral Gables.
An investor can defer paying capital gains taxes on a real estate sale by reinvesting the proceeds into a replacement property. However, the new property must share characteristics with the old property and be used for investment purposes. In real estate law, this transaction is viewed more as an exchange rather than a sale. The money derived from the proceeds never touches the seller’s hands and instead gets “exchanged” to purchase the new property. A 1031 exchange must meet several requirements.
The sold (relinquished) property and the new (replacement) property must fall under the IRS’s definition of like-kind property, meaning that the properties must share similar characteristics regardless of grade or quality. For example, a multi-family rental can be exchanged for a single-family rental. The property must be within the United States and cannot be a primary residence, vacation home, or property for personal use.
At Jacqueline A. Salcines, PA, we have our own Qualified Intermediary, so you do not have to go searching. Investors must also use what is referred to as a Qualified Intermediary Agreement before the relinquished property is sold. This is the person that holds the money and facilitates the transaction. If this agreement is not properly processed, the transaction and any property purchased with the proceeds will be taxable. At Jacqueline A. Salcines, PA, we do all the work for you and work with our Intermediary, so you do not have to go out and look for one. The intermediary is responsible for holding the funds from the relinquished property until the replacement property is purchased. The funds cannot go to the taxpayer at any point during this time.
If the investor has selected the relinquished and replacement property, the transaction moves forward. If not, they have 45 days from the closing date to find a replacement property and 180 days to close on it. Failure to comply can result in the investor having to pay taxes.
There are many restrictions, so speaking to a knowledgeable lawyer to handle the 1031 Exchange is always the best advice.
During an initial consultation, an attorney in Coral Gables could explain the legal process for 1013 exchanges and guide you on the next steps.
1031 exchanges are meant to encourage investment in real property. It allows investors to grow their portfolios without harming their liquidity. They can use the funds that would go to taxes for higher-value investments. For example, if an investor in New York City decides to sell a rental property because of increasing maintenance costs, they could re-invest the proceeds in multiple rental properties in growing areas for a quicker return.
Investors may also use a 1031 exchange transaction to diversify their portfolio. For example, a person could sell some of their residential properties to invest in commercial real estate, creating a more balanced portfolio. Investors in Coral Gables considering 1031 exchanges should contact an experienced lawyer to ensure the process goes smoothly.
Diligent real estate attorneys like Jacqueline Salcines are knowledgeable about the legal requirements and process for 1031 exchanges in Coral Gables. A lawyer could manage all required documentation to ensure a qualifying exchange and help you meet important deadlines. Don’t go it alone – let our dedicated team help you today. Schedule a consultation to learn more about how we may assist you.