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Understanding a Starker 1031 Like-Kind Real Estate Exchange

of Investment Real Estate in Sarsota Florida

    Want to defer capital gains taxes on the sale of commercial or investment real estate in Sarasota ?  You should know about and take advantage of one of the most important tools in the real estate business, 1031 like-kind exchanges (also known as a Starker Exchange).  . Working with a competent Sarasota realtor who can identify real estate opportunities and who knows the steps crucial to consummating a 1031 exchange.

    On April 25, 1991, the IRS issued deferred exchange regulation-Reg 1.1031(k)-, that allows taxpayers to defer all of the capital gains taxes resulting from the sale of investment property.  1031 exchanges are incredibly powerful tools a Sarasota real estate investor can use to avoid capital gains taxes.   The concept is simple; you "defer" capital gains recognition rather than paying Uncle Sam now by trading an existing property for a like-kind replacement real estate property.  Although the concept is simple, the specifics of doing so are a bit complex.

Prior to the Starker court settlement, the IRS disallowed tax-deferred exchanges unless all 1031 exchange real estate involved were transferred "simultaneously."  IRS said there could be no time between the transfer of the relinquished property and replacement property in an exchange.

    1031 exchangers need to seek the assistance of a competent Sarasota real estate professional who is familiar with the 1031 program as well as competent legal and tax advisors.

    To defer 100% of the capital gain on the past proerty, the following conditions must be met by the exchange:

• Both the property to be transferred (sold) and the property to be acquired must be held for rental or investment purposes or for use in a business or trade.
• The exchange must be for either an equal or greater fair market value real estate property.  In other words, in most cases, you avoid paying the capital gains tax on real estate you now own by using those monies to "trade up" to a more expensive real estate property
• The exchanger must reinvest all of the equity in the old property in the new property
• The excahnged must not get any immediate cash out of the deal
• Title to the new Sarasota real estate investment property must be held in the same way as it was held in the old property
• An "exchange agreement" (not necessarily, the purchase of the new property) must be executed with a "qualified intermediary" by the date of the closing of the sold property

    By definition a 1031 "Qualified Intermediary" is an independent and professional facilitator who receives the funds from the first sale and who holds the funds until they are need to purchase the new exchange property.  The Qualified Intermediary then directly delivers the money to the closing agent who then delivers the deed directly to the real estate investor.

    The 1031 Exchange is a tax-deferral tool, not a tax evasion tool.  When the new property is eventually sold (not exchanged into yet another property), the original deferred capital gains plus any additional capital gains on the new property will be combined and subject to taxation.

    The assistance of a professional Sarasota Realtor knowledgable in 1031 exchanges, as well as competent tax and legal counsel can make employing a 1031 like-property real estate exchange a very valuable tool in building your Sarasota real estate investment portfolio.