San Clemente Real Estate - Dana Point Real Estate - Long Beach Real Estate - Desert Area Real Estate

Your Guide to IRC-1031 Exchanges...(continued)

1. When the property is sold, the taxable gain is the difference between the selling price of the property and its basis. DISCLAIMER: discuss the tax ramifications with your accountant, CPA or attorney. Re/Max South County, their agents, or Carl Mitrak are not responsible for any material used herein as to reliability of content.
2. Gain (Loss) Realized: Gain realized is an economic concept indicating the amount of gain actually experienced in the transaction. Gain realized is the profit on the deal. In contrast, gain recognized is the gain reported for tax purposes.
3. Fair Market Value of Property Received: property received in a 1031 exchange must be " like-kind" property held for use in a trade or business or held for investment. Property may exchange in one of four ways: Investment property for investment property; Investment property for trade or business property 3.Trade or business property for investment property; and 4.Trade or business property for trade or business property Section 1031 does not include inventory, shares of stock, bonds, notes, certificates of trust or beneficial interest, and any other securities or evidences of indebtedness or interest.
4. Debt Relief. The amount of net debt relief that the taxpayer received by transferring his old property subject to existing encumbrances is also boot. When debt relief is smaller than the amount of gain realized, only the amount of gain realized is taxable. The general rule is that the transaction is taxable on the lesser of gain realized or boot received. Debt relief is treated the same as money received on the exchange
5. 1031 Exchange Clauses: (Purposes-Three Basic Exchanges) 1.Simple Exchange 2.Exchange with Resale 3.Exchange Delayed
6. The Clause: It is the intention of both parties hereto that this exchange as a tax deferred exchange under Section 1031 of the Internal Revenue Code.
7. 1031 Terms: 1.BOOT is created when the "Target Property" mortgage is less than the mortgage on the "Exchange Property 2.Mortgage Relief occurs when the " Target Property" mortgage is less than the mortgage on the "Exchange Property" which creates Boot, a taxable event. 3.The "Exchange" must have held the "Exchanged property" as an Investment or within their business or trade in which the "Exchange has taken appropriate deductions on the 1040 Form. 4.The "Exchange" must trade for "Like for Like-kind" properties that are designated as "Realty", and this does not mean "Same". The following are "ALL REALTY": Land ( improved or not ), Office Building, Commercial, Industrial, Vacation house, Apt., 30 + year leases, House(s) Any mix is available = Both Ways. 5.In a typical deferred exchange you transfer the relinquished property to a qualified bonded intermediary who promises to acquire replacement property and transfer ownership. 6.The " Facilitator" (Intermediary, Strawman, Accommodator) must be an Independent third party not under any control of the " Exchange" either actually or constructively. 7.Cash paid by "Exchangor" toward the "Target Property" reduces mortgage relief (Boot), and increases Basis. 8.The "Exchange" must be completed within the same calendar year. If you carry forward into the subsequent year, do not file your 1040 Form until you have closed- file and extension. Tax filing is the same as the 180 day of the "Exchange". 9.Upon the closing of the "Exchange Property" the "Exchangor" has 45 days from the day after the close of the "Exchange Property(ies)" to designate the "Target Property (ies) " which MUST close within 180 days from the "Exchange Property" closing. NOTE: The 180 days includes the 45 days.