1031 Exchanges Essay -- essays research papers

Final Paper 1031 Exchanges Insight for the square(a) estate investorThis paper is create verbally to provide a reasonably comprehensive overview of slit 1031 of the IRC as it pertains to real estate transactions, and to offer some thoughts on the wealth-creation advantages that 1031 Exchanges offer.For the greater part of the operate decade, we in the united States restrain been witness to a consistently appreciating real estate market. Sometimes it seems that almost eachone who has purchased a ho ingestion, piece of station, or other real estate type investment has done very well. I soulally can point to a few examples where friends of mine have made several hundred times their first home impartiality investment. In sales of primary homes there is a levy advantage that the IRS permits, as long as the proceeds are invested into another home, the seat of government gains on your existing home sale are exempt from taxation. However, if the plaza in question is an inv estment, a capital gain tax is assessed every time there is a sale that includes a gain. A tax strategy that investors can employ in such(prenominal) situations is to transfer their investment belongings for another investment of like-kind, this is a Section 1031 Exchange. Under Section 1031, if all its guidelines are met, the exchange is not a nonexempt event. Also, correspondent to tax rules regarding reorganizations - in a 1031 Exchange there is no taxable event and therefore no step-up in basis.The wealth-creation advantage of a 1031 Exchange can be viewed in the chart below. The example depicts two sales of real estate, the initial assumption is that the spot has been completely depreciated and the immaculate $100K of initial equity is a capital gain. burden 1Event 2Typical Sale1031 ExchangeInvestment experiences 20% gustationTypical Sale1031 ExchangeEquity 100,000100,000160,000200,000Tax20,000016,0000... ...y in spite of appearance the United States and personal prope rty used predominantly outside the United States are not property of a like kind.(B) Predominant use and as provided in subparagraph 1 (C) and (D), the predominant use of any property shall be determined based on(i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and (ii) in the case of the property acquired in the exchange, the 2-year period beginning on the date of such acquisition. (C) Property held for less than 2 years Except in the case of an exchange which is part of a transaction (or serial publication of transactions) structured to avoid the purposes of this subsection(i) only the periods the property was held by the person relinquishing the property (or any related person) shall be taken into consider under subparagraph (B)(i), and (ii) only the periods the property was held by the person acquiring the property (or any related person) shall be taken into account under subparagraph (B)(ii). (D) additi onal rule for certain property Property described in any subparagraph of section 168 (g)(4) shall be treated as used predominantly in the United States.