1031 Exchanges for Salt Lake City Real Estate

Information on how you can use 1031 Exchanges when selling investment property.

All About 1031 Exchanges

What is a 1031 Exchange?

If you own investment real estate then one of the ways you can defer tax is by performing a 1031 exchange. The 1031 exchange allows you to sell an investment property and buy another without paying tax on the gain of the sale.

There are several different types of exchange that can be performed depending upon your circumstances:

Same Day or Simultaneous

This is where both homes are closed on the same day and therefore the exchange is performed on the same day.

Delayed

This is where the new home purchased is completed after the home has been sold. Therefore the exchange is performed at a later date. There are time frames defined by the IRS that need to be followed (a 45 day and a 180 day).

Reverse

This is where the new home is purchased before the old home is sold. A intermediary holds the title for the new home until such time that the old home is sold.

Improvement

This is where the old home is sold and a new one is purchased but you want to make improvements to the new home before performing the exchange. This is usually performed because you want to bring the new homes value up to or above the value of the old home so that you don't have to pay tax on any gain on the old home.

Does Your Investment Property Qualify for a 1031 Exchange?

The 1031 IRS code states that the 2 homes exchanged must be like for like. Homes are deemed to be like for like even if the condition of the homes are different, for example, one is in a good state of repair with many improvements and the other is run down. An exchange cannot be performed if one of the homes is located outside of the U.S. The following homes are also excluded, property used as your personal residence, land under development, property purchased for resale, fix/flip properties, inventory property, corporation common stock, bonds, notes and partnership interests.

What is the Tax Liability?

You will not have to pay tax on the exchange of the 2 homes if the new home is a greater or equal value to that of the one sold. But you will have to pay tax once the new home is eventually sold (and no exchange is performed). The tax basis for the home (before any other deductions) is the combined gain on all homes that were part of the exchange. For example, if the original home was purchased for $100,000 and sold for $110,000 and the 2nd home was purchased for $125,000 and sold for $140,000, then the combined gain would be $25,000 (10 for the 1st and 15 for the second). 

Title on the Homes Exchanged Must be the Same.

One of the rules for the exchange is that the home being purchased must be in the same names (the same names must be on the title) as the home that was sold. For example, if Mark and Trela purchased a home and then exchanged the home for another home then both Mark and Trela must be on the title of the new home.

 

For more information on performing a 1031 Exchange for Salt Lake City Real Estate it is recommended that you read the IRS website. We also recommended that you consult a real estate tax advisor before undergoing any real estate transaction based on a 1031 exchange.

Return to Home Selling Advice