In the real estate investment circles, a 1031 tax deferred exchange is a way to defer capital gains taxes when selling a real estate related asset for profit in California. Although some investors choose this tactic, it is not ideal if you need to cash out the proceeds in order to put it in your pocket, or invest in non-real estate related investments. If you need cash from the sale of your investment property, it is time to look for a 1031 alternative to identifying investment property to purchase with the proceeds.
This is due to the fact that under a 1031 transaction, the proceeds must be reinvested into another property or properties of equal or greater value within a 180-day timeframe. In addition, you must identify a property or properties to purchase within a maximum of 45 days after closing on the initial property. Under the IRS’s 1031 tax deferred exchange, sellers can never actually take receipt of funds when they sell an investment property for profit without paying a corresponding tax for receiving taxable boot.
If they do it will automatically trigger a capital gains issue. When the sale closes, your funds are placed in the hands of a Qualified Intermediary. It is similar to having your money held in an escrow account that you cannot access. The Qualified Intermediary releases the funds in escrow when you purchase another property or properties. The bottom line is that your profit can only go towards the purchase of the replacement property including paying for it in cash, the down payment, and a few select closing costs as outlined by the IRS.
If you fail to identify a like kind property within the 45-day time frame or close on the property within the 180-day time frame, the Qualified Intermediary returns your money. At that point you are responsible for paying the capital gains tax on the sum. The lack of choice to see any cash in hand is one of a plethora of reasons why a great deal of investors need a 1031 alternative to identifying replacement investment properties.
The good news is that if you are faced with not being able to timely identify investment property you still can delay paying capital gains taxes, free up cash, and live a more stress free life thanks to the best 1031 alternative to identifying investment property.
It is called the Installment Sale Method which can be implemented to either save a failing 1031 transaction or as an alternative to implementing a 1031 exchange. Both selling a 1031 exchange account balance or selling investment real estate for profit under the Installment Sale Method is a viable alternative to 1031 Exchanges. It is our view, that in most instances delaying taxes is better than paying them. In fact, capital gains tax can cost you upwards of thirty percent of your profit or even more in some cases.
Please contact Tax Deferred Sales today. TDS has specifically developed a proprietary tax expertise structure that is far more effective than a complicated 1031 transaction for real estate investors in California. Our team of experts specializes in providing customized Installment Sale strategies that delay tax impact. TDS takes great pride in assisting sellers of appreciated assets in deferring the capital gains tax that greatly enhances the ability to grow your net worth.
Our company was founded by a LLM tax attorney with over 20 years tax deferral experience and expertise with a singular focus on assuring sellers delay of taxation.