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1031 Exchange Year-end Tips

Posted on October 26, 2012 by Jeff Hobbs

Here's a couple year-end tips if you are considering a 1031 exchange.

Did you know that if you open a 1031 exchange and your Accommodator is holding your funds before the New Year you get to defer any capital gain taxes due until 2014, even if you cancel your 1031 exchange? Since the 1031 exchange is concluded (or cancelled) in 2013, taxes (if applicable)* are not due until April 2014. Any property under contract or in escrow NOW that will close by the end of the year in 2012 can be the first leg of a 1031 exchange. By opening the 1031 exchange today you allow your taxes on the 2012 sale to be deferred until 2014 - EVEN IF YOU DO NOT COMPLETE THE 1031 EXCHANGE!!!

Death and Taxes are Certain Unless You Exchange, but the other thing that is certain is that a tax dollar paid later stays in your pocket. It’s your money - why not keep it as long as you can? It's the old tried and true adage, "a dollar today is worth more than a dollar tomorrow!"

Remember, in life it is the road well traveled that makes for an enjoyable journey. In investing, the road well planned with an eye toward flexibility and rethinking your options, will lead toward fulfillment and TAX-FREE riches! It is important to make sure your 1031 Exchange is started prior to year-end.

* Taxes are only due on 1031 exchanges that cancel, do not meet the 180 day deadline, or conclude with boot funds remaining in the 1031 exchange account.

When a 1031 exchange is opened at the end of a calendar year- less than 180 days before April 15th or when the taxpayer's taxes are next due, the taxpayer can request an extension to allow for a full 180 day period for the 1031 exchange.

A 1031 exchange opened in one calendar year that fails in the following calendar year will convert to an installment sale. There may be some tax due in the year that the property sold, but the balance of the tax will be due in the year the taxpayer receives the return of the 1031 exchange funds. This, of course, is if the taxpayer did not elect to take advantage of a Deferred Sales Trust (DST) allowing for an indefinite time period with no federal income taxes due.

Taxpayers must be certain to pay the tax when it is due or they may be subject to interest and or penalty. Please check with your tax professional for guidance on your specific situation. This blog is not intended to address every situation and, in fact, can not as each taxpayer's situation is unique to them.

For more information about 1031 Exchange opportunities, Deferred Sales Trusts (DST), or other tax-savings strategies, contact us at... Segregation Holding Limited Twitter LinkedIn Facebook 972-893-9081