Georgetown Real Estate Lawyer

Section 1031 Exchange

Although 1031 like kind exchanges can be very useful in deferring income taxes, they are not suitable for everyone or every situation. To determine if an IRS 1031 tax deferred exchange is right for you, you should consult with a qualified 1031 exchange attorney. At the law office of Harold W. T. Purnell, II, P.A., I have been practicing law for over 25 years and am very experienced handling 1031 exchanges. Contact a 1031 exchange attorney today for a free initial consultation.

Real property, other than your residence, can qualify as section 1031 exchange property. One of the purposes of a section 1031 exchange is to sell real estate and purchase other real estate with the proceeds without immediate capital gains tax obligations. Although the best way to learn about 1031 exchanges is to speak with a qualified attorney, my firm has provided the following as an introduction to the important aspects of the process.

• Qualified intermediary: In order to successfully complete a section 1031 exchange, one must transfer the proceeds from the sale to a third party who will use the proceeds to acquire the new property for the individual and transfer the title back to them. This third party is known as a qualified intermediary. I am a real estate lawyer skilled in negotiating and drafting agreements to create a qualified intermediary arrangement and designate the use of a qualified intermediary in real estate closings.
  
  
• Quality and character of the property: Section 1031 exchanges are only valid if the property being sold and the property being purchased are for investment, business, or rental purposes. The character of the property must be 'like-kind'. For example any real property may be exchanged for any real property. However, real property may not be exchanged for personal property. In addition, the exchange can involve multiple properties. However, if you want to defer one hundred percent of the capital gains tax, the property acquired must be equal or greater in value than the property sold.
  
  
• Exchange structure and timelines: I am experienced handling forward exchanges, construction exchanges, and reverse exchanges. In forward exchanges, there are important deadlines to remember. From the closing of the sold property, the tax payer has 45 days to identify a replacement property to invest the proceeds into and 180 days to close on purchasing that property. Otherwise the 1031 exchange is not successful and taxes will not be deferred.
  
   
• Identification rules: The individual can identify up to three properties to invest the proceeds from the sale into. This is called the 3 property rule. If the individual wishes to invest in more than three properties, they must follow the 200% of fair market value rule. If more than three properties are being purchased, the fair market value must not exceed 200% of the sale price of the original property sold.

The following is a way to calculate what taxes would be due.

* State capital gain percentages differ depending on the state and on individual tax brackets.

Section 1031 exchanges should not be approached without speaking with an experienced starker exchange attorney. For experienced and knowledgeable legal assistance, contact Georgetown real estate lawyer, Howard W.T. Purnell, II.

Harold W. T. Purnell, II, P.A.
8 North Race Street
P.O. Box 977
Georgetown, DE 19947
Phone: (302) 858-5151
Toll Free: (866) 296-HWTP (866-296-4987)
Fax: (302) 858-5161
Email

The law office of Harold W. T. Purnell, II, P.A., located in Georgetown, Delaware, represents individuals throughout southern Delaware, including Sussex County and Kent County and the communities of Georgetown, Dover, Rehoboth Beach, Bethany Beach, Fenwick Island, Milford, Laurel, and Seaford, DE.