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Tell Your Captial Gains Taxes To “Shove It”!
By plrprousers | March 15, 2009
Many investors make the mistake of selling their business or investment property and end up having to pay thousands of dollars to the government in capital gains taxes. What they may not be aware of is that there is a tax provision that allows them to sell their property which has either been used for business or some type of investment without having to pay capital gains taxes.
This law defers (and can even eliminate the capital gains taxes) you would typically need to pay when selling business or investment property. The money that is made on the sale of your business or investment property, must also be used only to purchase another “like-kind. When you take advantage of the 1031 exchange laws, you can save a lot of money, thereby allowing you to leverage your equity by purchasing even more property (which may have not been possible without the added tax savings).
The 1031 Exchange provision has saved investors millions and millions of dollars, and it is well worth your time to explore the benefits of it for yourself. There are some procedures you must follow in order to start reaping those rewards.
Be sure that you select qualified intermediary (A.K.A. “Q.I.”) with a solid track record and professional reputation. A qualified intermediary should be very familiar and exclusively in the business of facilitating tax exchanges. The Q.I. opts into a legally binding agreement to change the transaction from a “Sale” to an “Exchange” and transfers the old property that you are giving up, takes the left over proceeds, and uses them to transfer the replacement-property over to you.
To qualify for your exchange, you will need to follow these rules:
1. First, the property you are relinquishing and replacing must have been used for investment or a trade and must be like-kind (i.e. United States real estate for other U.S. real estate).
2. Secondarily, you will need to locate a property to replace your property if you have not yet done so, and make sure it is identified clearly in writing within 45 days to your Qualified Intermediary. You must close the sale on the replacement property within one hundred and eighty days.
3. In order to defer all of the taxes, all your money made in that sale must be used to purchase the new replacement property.
You will be best positioned to make a 1031 tax exchange if you follow these rules. This will be well worth it to you in the end, even if it seems a little complicated from time to time, the basic procedure is really quite simple. Go ahead and keep your money working for you by using a 1031 exchange to defer your capital gains taxes!
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