IT'S YOUR PROFIT...
HOW SMART INVESTORS LESSEN THE TAX BURDEN
If you are selling your investment property and reinvesting your profit, you've come to the right place and here's why:
- Huntsville is a great place to invest
- This website is designed to help guide you
through the 1031 exchange process
- Our property leadership team has experience
and can help you get the most out of your
If you sell your investment property, any gains are subject to being taxed. The 1031 exchange is a loophole you can take advantage of by reinvesting those gains. If you like to keep your profits, the 1031 exchange should be part of your investment strategy.
If you have investment property but are ready to make a change, then you need to plan ahead to make sure you get the most out of your profits and lessen the tax burden. Whether you like it or not, the IRS will be coming after your Capital Gains -AND- the depreciation deduction you have taken on your prior tax returns.
If you know how the IRS works, you shouldn't be surprised that they also provided a sizable loophole to allow savvy investors to defer those taxes to another investment. The process is a little complicated, but it basically works like this: A 1031 exchange allows a property investor to swap one property for another. When you sell a property, the idea is that you roll over any gains from that property into the purchase of a new property.
You are technically not realizing the gains of the sell because you are using those funds to purchase new property. Therefore, you do not have to immediately pay any taxes on this money. You defer paying taxes until you sell the new property, unless you do another 1031 exchange.
The name 1031 Exchange comes from Section 1031 of the Internal Revenue Code. This section of the code is where you can find the guidelines regulating the dos, don'ts, and the timelines for pulling this off.
One of the challenging elements is the timeline that needs to be followed. There are also certain rules about property values that need to be met. Overall, the process is pretty straightforward as long as you have a knowledgeable professional helping you with it.
That's where we come in. Let's get together and create a plan to accomplish your goals.
WHAT IS A 1031 EXCHANGE?
Further down the page, you can listen in as we discuss the process with a Qualified Intermediary, or QI for short. Russ Munger is a local attorney who performs 1031 exchanges in Huntsville.
In the most common type of 1031 transactions, this is how the process works in the simplest of terms:
BEFORE YOU SELL, you engage a QI to help with your exchange.
SELL YOUR PROPERTY. We suggest listing a local realtor, like the professionals at 256 Realty.
ONCE YOU SELL, the QI receives the proceeds from your first closing and holds them until your next closing.
YOU NOW HAVE 45 DAYS to identify potential properties for the exchange. (There is no wiggle room for this deadline.)
SUBMIT YOUR LIST of properties to the QI.
(We strongly suggest working with a Broker or agent that understands the process.)
YOU HAVE 180 DAYS from the sale of your property to close on your new property.
YOUR QI WIRES THE MONEY they are holding to the closing attorney on your behalf. You provide the remaining funds.
- 45 AND 180 ARE KEY NUMBERS. these deadlines will pass quicker than you expect, and the penalties for missing them are severe. These time limits do not extend over weekends. 180 days is 180 days.
- HAVE YOUR QI SET UP BEFORE YOU CLOSE. If you don't it is too late.
- IT'S NOT ALL OR NOTHING. It's okay if you don't spend all your gains. You will just have to pay taxes on what you don't spend.
- THE ENTITY MUST BE THE SAME. It has to be the same person or LLC when you sell your property and when you purchase new property.
- THE EXCHANGE CAN BE FOR A DIFFERENT NUMBER OF PROPERTIES. 1031 Exchanges can be one property for one property, one for multiple, multiple for one, or multiple for multiple.
HOW WE CAN HELP
Just to be clear, we do are not Qualified Intermediaries. However, we do help you with information about the 1031 Exchange process and help you find a provider in Huntsville, Alabama, and helping you buy and/or sell your exchange properties through our brokerage, 256 Realty.
We are investors ourselves and we work with investors with any level of experience.
By owning our own rental property in the 256, we can easily help you sort through the properties available in Huntsville and North Alabama to help you find the best rentals. We also often find properties that are not currently on the market.
Over the past few years, we have helped our clients buy and sell millions of dollars worth of properties, and the percentage of those sales that are part of a 1031 Exchange is increasing. Paying more taxes than you need to will slow down the growth of your portfolio and impact the wealth of your family for generations. Savvy investors use the 1031 Exchange to keep more of their money, and you should be doing the same.
Let's get started today!
Click the play button in the media player below to listen to a 16 minute interview with Real Estate Attorney Russ Munger explaining how the 1031 exchange works.
Russ Munger has worked in Madison County for more than 30 years. He now specializes in Real Estate Law and Estate Planning. His team of real estate professionals have been trained by him to be professional and efficient at helping clients with their needs.
You can find his firm at mungerandmiddleton.com