1031 Exchange Starker

It's not uncommon for real estate investors to want to switch out one investment for another in order to increase cash flow. If one real estate asset is sold to pay for another, though, the investor will have to pay capital gains taxes on any increase in value. If all the proceeds are re-invested in an alternate investment property, this could amount to a sizeable tax hit.

The IRS recognizes this as a disincentive to re-investment, and thus allows capital gains taxes to be deferred when one property is replaced by another in a timely manner. The section of the Internal Revenue Code that governs the tax treatment of these transactions is Section 1031. They are known as 1031 exchanges or Starker exchanges (after a court decision known as the Starker decision).

In order to maximize the favorable tax consequences of a 1031 exchange, the investor will need to structure the transaction carefully. For example, if as part of the exchange you receive any cash or other property that does not qualify as investment real estate (e.g., furnishings), the IRS will recognize gains to the extent of this compensation. Essentially, the IRS states that all compensation must be of like-kind in order to qualify for tax deferment.

When completed properly, these tax-deferred exchanges are often considered to be the equivalent of getting an interest-free loan from the government in the amount of the taxes that would otherwise be owed. The team at TM 1031 Exchange devotes its resources to helping investors find buyers and sellers for investment properties for these deferred exchanges. To learn more about our services, please call us toll free at 1-877-4TM-1031 or send an email here info@tm1031exchange.com.