Irs 1031 exchange rules 2016

If, as part of the exchange , you also receive other (not like-kind) property or money, you must recognize a gain to the extent of the other property and money received. You can’t recognize a loss. WASHINGTON — The Internal Revenue Service today reminded taxpayers that like-kind exchange tax treatment is now generally limited to exchanges of real property.

Within calendar days after the closing on the first property, property identification must be made. Perhaps unsurprisingly, the tax return and the name appearing on the title of the Relinquished Property must be the same as the tax return and title holder of the new Replacement Property. To put it simply, this strategy allows an investor to “defer” paying capital gains taxes on an investment property when it is sol as long another “like-kind property” is purchased with the profit gained by the sale of the first property.

But some exchanges of personal property (say a painting) can qualify. The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. The exchange of property for the same kind of property is the most common type of nontaxable.

This guide walks through the requirements, rules , options, and various examples. They have rather evolved over the years from the statute, the URS Revenue Rulings, an to a lesser extent, from Private Letter Rulings. Routine selling expenses such as broker commissions or title closing fees will not create a tax liability.

One exception to this rule is that U. Most people underestimate just how much they will pay in taxes. It states that none of the realized gain or loss will be recognized at the time of the exchange.

Given the choice, ALWAYS, take the tax free option. Your QI must hold your proceeds during your exchange. You may not receive, or have direct access to, your proceeds in any way during the exchange process. If you completed more than one exchange , a different form must be completed for each exchange.

Contact your Closing Agent Provide sale information. It is used by investors to buy and sell similar investments while postponing taxes on the profits generated along the way. Boot received is the money or the fair market value of “other property” received by the taxpayer in an exchange. Any gain on a like-kind exchange isn’t subject to tax until the owner sells the replacement property. Keep in mind that one of the justifications for tax deferral is that a taxpayer has reported all the incidences of ownership and that the taxpayer’s basis will carry over into the new replacement property.

Exchange Rules and Limitations. The section creates a “safe harbor” that permits the taxpayer to have assurance that the transaction will permit the deferral of the capital gain tax payment. Tax rules require investors to recapture at a higher tax rate (typically ) the portion of the gain on the sale that relates to allowable depreciation over the period the asset was held.

One of the primary objectives of a tax -deferred exchange is to defer paying any tax on the gain realized when you sell the relinquished property. The federal tax code imposes a number of requirements to qualify for this favorable tax treatment, among them restrictions on the types and values of property exchange the timing of the exchange and the people that must be involved in the transaction(s). In a Chief Counsel Advice (CCA) memorandum, the IRS Office of Chief Counsel concluded that for purposes of Sec. Real estate exchanges are subject to the same rules and regulations as under previous law.

Real Property Use – Held for investment or rental. Day Identification Period.

Same Taxpayer required on title. To start, you need to open an exchange with a qualified intermediary, and then list your property for sale. Qualified Intermediary (QI) holds the money. How do I report this transaction on my tax return? So, one of the major provision of law that was used by a taxpayer to save on capital gains tax requires fresh look and understanding.

For example, the exchange of U. California for like-kind property. For information on filing requirements, see General Information B, Who Must File.