Tax season is approaching and many of us are beginning to realize that a contemplated sale of an asset will create a large capital gains exposure in the current tax year. Thankfully, there is a method that exists that will limit your exposure and help you pass that tax liability along to a time where you are better prepared to meet that obligation. The use of a 1031 Deferred Tax Exchange is useful in helping you defer that tax liability until a later time.
Simply put, a 1031 exchange allows you to defer capital gains tax by using the proceeds of the sale of one asset for the purchase of another similar asset. The two assets must be of a like kind (i.e. real estate for real estate or manufacturing equipment for manufacturing equipment). The proceeds from the sale of the first asset may not be given to the seller, but rather be placed in a trust account managed by a “qualified intermediary” for the seller’s benefit until a new property is identified and settlement occurs, at which time the qualified intermediary than deposits the funds into escrow to be used in the subsequent purchase. The seller also does not need to have the new property identified at the time of the sale, but rather, has 180 days to identify and settle on the new property.
I have assisted clients in closing many 1031 exchanges and work with a range of companies that cat as the qualified intermediary for my clients. Most times, the title insurance underwriter that is used to issue a title insurance policy has a subsidiary corporation that facilitates 1031 exchanges and will act as the qualified intermediary.
If you are contemplating a 1031 exchange, please contact The Law Office of Dennis J. DiSabato, Jr., LLC today.
Dennis J. DiSabato, Jr.
The Law Office of Dennis J. DiSabato, Jr., LLC
3888 Renee Drive, Suite 201
Myrtle Beach, SC 29579