Properly structured, a 1031 exchange will allow for an investor to sell a property then reinvest the proceeds in a new property to defer all capital gain taxes. Lafayette General Title Agency is perfectly positioned to help investors, real estate professionals, and tax professionals with all types of 1031 exchanges. Our knowledge of 1031 exchanges, experience in the title industry and our familiarity with legislative regulations enable us to process your transaction smoothly and thoroughly, from start to finish.
Taxes are paid on capital gain, not equity or profit. It is possible to sell property without realizing much profit and still owe substantial capital gains tax. Capital gain is simply the difference between the sales price and the adjusted basis (i.e., what you paid for the property, plus amounts spent on capital improvements, less depreciation taken) less any closing costs associated with the sale. To fully defer federal as well as state capital gain taxes, the exchanger must reinvest all exchange proceeds and either acquire property with equal or greater debt or reinvest additional cash equal to the debt relief. IRC Section 1031 (a)(1) states:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.
Because of the complexities involved in 1031 exchanges, it is important to work with a title company that understands the regulations and guidelines that require compliance. To bring the Lafayette team of 1031 exchange title insurance experts into your transaction, please give us a call.
Consult with your attorney or tax advisor to determine the correct values and whether a 1031 exchange is appropriate for your circumstances.