|
There are currently some 15 million
Americans who own real estate investment property, and more
and more of them are discovering the advantages of using
1031 tax-free exchanges for deferring capital gains taxes
when they sell. A 1031 exchange is a provision in the IRS
code that permits investment property owners to sell
properties and buy new ones without having to pay taxes on
the sale of the old properties, assuming stipulations
concerning the use of the proceeds and time limits have been
met. Investors have 45 days following the sale of their
old properties to find a new one and to comply with
particular written notice provisions, as outlined by the
IRS. The purchase of the new property must then close within
180 days. If those provisions are met, the investor will pay
no federal income taxes on the property, assuming the new
property is an investment like the one just sold. The
replacement property must be of equal or greater value.
The property can be multiple houses, farms, or other real
estate, but it can't be the investor's principle residence.
The IRS prohibits using a 1031 exchange for the purchase of
a new home. However, there is an exception to that rule. If
the investor rents out a home for two years following the
exchange, that house can then be converted to the investor's
place of residence, since the home was initially used to
fulfill the stipulations of a 1031 exchange, which specify
that an investment house must be replaced with another
investment house.
If an investor chooses to take that route, after five
years from the date of the new home's purchase, that home
can then be sold and the taxes excluded, due to an IRS
exclusion for the sale of a primary residence, which can be
$500,000 for married couples and $250,000 for an individual.
This can be a great way to avoid taxes on a significant
amount of profit from investment in houses, but you'll want
to make certain you have followed the tax code meticulously.
If you want to learn more about
1031 tax-free exchanges, you
can visit www.irs.gov and consult with your own tax
consultant, accountant, or attorney. It could save you
thousands of dollars while you're moving up the ladder in
your overall real estate investment strategy.
Copyright © 2006 Jeanette J. Fisher.
Jeanette Fisher, author of interior design, real estate
investing, and home staging books teaches home sellers five
ways to get more money from their home sale.
Home Selling Articles Free home seller's reports
Sell Home Fast
Article Source:
http://EzineArticles.com/?expert=Jeanette_Joy_Fisher |
