1031 Exchange Expert Is Your Source For Unparalleled Industry Prowess
Investing in commercial real estate can be highly lucrative. Should you choose to sell an investment property that has increased in value since originally purchased, you’ll want to work with an experienced 1031 Exchange broker to protect your gains. A 1031 Exchange is a strategy to defer paying large capital gains taxes when you sell an investment property by reinvesting the proceeds into another investment property. Though based in Colorado, Fountainhead Commercial has the experience and ability to complete the 1031 Exchange transaction process in all 50 states.
Fountainhead Commercial is proud to be your local 1031 Exchange expert. Let’s talk about how this process works and what you can expect from us as your 1031 Exchange broker.
What Is A 1031 Exchange?
A 1031 Exchange, also known as a Starker Exchange or Like-Kind Exchange, is a powerful tax-deferral strategy defined and allowed under section 1031 of the IRS Code. It is important for an investor to understand their potential capital gains tax liability, which varies state to state. Long-term capital gains are currently taxed at the Federal level at a rate as high as 20 percent, depending on the taxpayer's income. An additional 3.8 percent capital gains tax is also applicable at the Federal level due to the implementation of Obama Care. Furthermore, at the State level, an investor's gains can be taxed as high as 12.3 percent in California or as low as 0.0 percent in Texas. Some local municipalities, like New York, also have additional capital gains taxes. In general, most Colorado tax payers can estimate that they will incur as much as a 30 percent tax liability on any long-term capital gains.
A Simplified Example Of A 1031 Exchange
Speaking in round numbers, consider you made an all-cash purchase of an investment property or property used for your business for $1,500,000 and after at least one year of ownership a buyer offers you $2 million. That equates to $500,000 in capital gains realized after closing. Assuming your tax liability makes up approximately a third of that gain, you would owe the IRS $165,000 in capital gains taxes which reduces the net proceeds you have available to reinvest. Alternatively, if you enlist the expertise of a 1031 Exchange broker to execute a 1031 Exchange transaction, you can defer paying $165,000 to the IRS and reinvest the entire capital gain, thus allowing you to purchase a replacement property worth at least $2 million.
This increased purchasing power is one of the key advantages of a 1031 Exchange. With the right support from a Qualified Intermediary, real estate attorney, tax advisor, and 1031 Exchange broker, a 1031 Exchange is a straight-forward process. However, you must act within strict timelines and follow established IRS rules in order to reap the benefits of deferred capital gains.
Delayed 1031 Exchange
A “delayed” 1031 Exchange transaction is the most common method used by investors/taxpayers. In this case, the investor/taxpayer will relinquish or sell the original investment property first and close on the acquisition of the 'replacement property' within the designated timeline.
Key Timelines To Defer Capital Gains Taxes
Our 1031 Exchange expert can help real estate investors adhere to the strict timelines required for a successful exchange. Per the IRS code, you only have 45 days to identify, in writing, all potential investment properties you want to consider acquiring. You only have 180 days in which to complete the acquisition or 'up leg' transaction. It is critical to understand that both the 45-day and 180-day timelines begin on the date that you sell your original investment, or relinquished property. It’s easy for time to get away from you as you peruse the available investment listings, arrange property tours, and determine which properties might be a good fit based upon your investment strategy. This is where our leading 1031 Exchange broker can come into play.
Reverse 1031 Exchange
Alternatively, a “reverse exchange” involves acquiring a replacement property before selling the relinquished property. This is generally a more expensive option, but it is often the better solution for investors who want to purchase a specific replacement property prior to finding a qualified buyer for their relinquished property.
Other, less common, 1031 Exchange transactions include Simultaneous Exchange and Improvement Exchange.
Benefit From A 1031 Exchange Expert At Fountainhead Commercial
Certified Commercial Investment Member (CCIM)-designated 1031 Exchange broker, Lowrey Burnett, has extensive experience with 1031 Exchange transactions and passes the benefits of his expertise onto his clients. Because taxable gains are a key concern to every investor, Fountainhead Commercial has streamlined our 1031 Exchange support process to facilitate a stress-free experience for our clients. By enlisting the help of our 1031 Exchange expert, you reap the benefits of a representative who is looking out for the best interest each client and related investments at every step of the way. From providing timely market information, determining the right type of exchange, identifying suitable replacement properties, and arranging property tours across the United States to negotiating purchase prices and terms on the investor's behalf, reviewing due diligence documents, and closing on your replacement property with the IRS-mandated timelines, you gain a true advocate when you engage Fountainhead Commercial to handle your 1031 Exchange.
If you want to sell an investment property or property used for business while deferring your capital gains tax liability with the support of a 1031 Exchange expert, contact Fountainhead Commercial today.