Camelback Real Estate Investments

How To Avoid Paying Real Estate Taxes Using Section 1031 and Code Section 121:

Real estate owners can use two different IRS code sections to avoid all, or almost all, of the tax on the sale of their real estate.

Code Section 121 applies to your personal residence. It provides for an exemption of $500,000 of gain for a married taxpayer on the sale of a primary residence (or $250,000 of gain for a single person). To qualify for Section 121, the taxpayer(s) needs to both own and use the property as a primary residence for at least 2 of the last 5 years.

On the other hand, Code Section 1031 applies to any real estate held for investment purposes, like rental houses, commercial property, or bare land. It allows the taxpayer to defer, or postpone, the payment of the capital gains tax by rolling the gain from the sale of an old investment property forward into the purchase of a new investment property.

Used together, these two code sections are very powerful. Be sure to consult a 1031 Expert if you are considering a tax-deferred exchange transaction

What Exactly Is a Code Section 1031 Exchange?

Six Things You Need To Know:

1) If both your old and new properties qualify as investment

or business use, you can exchange nearly any type of real estate.

2) You have 45 days from the

closing of your sale to list the

properties you may want to buy. There are no exceptions to the deadline.

3) From the sale closing date, you have 180 days to close on the purchase. There are no exceptions.

4) The IRS says you must use a

Qualified Intermediary. The QI

cannot be your friend, employee,

broker, accountant or attorney.

5) You must purchase and take

title to your new property

exactly as you held title to your old property.

6) You must buy a property equal

or higher in value than the one

you sold, and reinvest all of the cash proceeds from your sale.