6 Steps On How To Pay NO Tax W
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Don’t Pay If You Have To!
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Wouldn’t it be nice to sell your
property and legally postpone all of the federal income tax at the time of sale. If you cross your T’s and dot your
I’s it could be
possible. It is also possible to never pay the tax. (more about this later) Does Your Property Qualify? Straight from the Internal Revenue Service (IRS)…”No gain or loss shall be recognized if property held for productive use in a trade or business or for investment purposes is exchanged solely for property of a like-kind.” In plain English: Property held for productive use (for example – duplex or other income producing) in a trade or business (not inventory) does qualify. Property held for investment. (for example – shopping center, vacant land or rental property) does qualify. Your primary residence does not qualify under Section 1031. It does qualify for an exchange under a different set of rules not covered by this report. Property held for re-sale (inventory of a developer) does not qualify. |
6 Steps On How To Pay No Tax When You Sell Investment Property Here is where the crossing your T’s and dotting your I’s are important. Since this is such a tremendous advantage for you the IRS will not budge if you do not follow their rules. 1.) Enter into an “Exchange Agreement” between you the Seller and a
“Qualified Intermediary.” This is the first step in documenting
your transaction to establish your intent to qualify the sale of your
property as a “like kind exchange.” Usually an exchange agreement consists of
a five-ten page document prepared by the “Qualified Intermediary.” This will
spell out the duties and responsibilities of the Intermediary and is written
to satisfy the requirements of the IRS. 2.) The contract for the property you are selling must not
prohibit the “right of assignment.” The Exchange Agreement will provide that you transfer all of your rights to the Intermediary prior to the closing. In reality, with this Agreement you will deed the property as seller directly to the Buyer. This is more of a formality but it must be done. |
3.) When you close the sale of your property the
“Qualified Intermediary” must keep your funds until you purchase the
replacement property. You cannot handle the funds when
your property is closed. The Intermediary will keep the funds in an escrow
account for you. Their fee depends upon the complexity of the transaction but
will usually be in the $600 to $1,500 range. The Intermediary cannot
be your personal attorney, accountant or real estate agent. Whomever is going to close the sale of your property can
recommend several Intermediaries to choose from. 4.) You have 45 days after the closing of the sale of your property to
“identify” potential replacement property you might want to buy. You do not have to sign any
Purchase Agreement to buy right now. You simply have to “identify” in writing
to your Intermediary what property you are considering to purchase. You may
identify up to A.) 3 different properties regardless of value or B.) any number of properties not to exceed 200% of the
property you sold. For example, if your property sold for $200,000 then you
could identify any three properties regardless of value or five lots valued
at $80,000 each. You do not have to purchase everything you identify. 5.) You must close the purchase of the replacement property within 180
days from the day you sold your property. After you identify the replacement property you can then take your time negotiating on all of the property you identified in #4 above with one major consideration. You must eventually close the purchase on one or more of the replacement property you identified in #4 before the 180 day deadline. |
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No exceptions for delays in
construction, fire or other natural disaster. That is why it is a good idea
to always identify more than one potential replacement property.
6.) The contract for the property your are purchasing
must not prohibit the right of assignment.” This uses the same reasoning as #2
above. Typically, you will actually sign the Purchase Agreement and the deed
will be from the Seller to you. Again, the formality is for you to assign
your Purchase Agreement to the Intermediary. Therefore, be sure your real
estate agent provides for a “right of assignment.” Why It is Like An Interest Free Loan from the IRS. Think about it. If your exchange qualifies
you are really using the income taxes that you did not have to pay to
the IRS at the time of your sale as all or part of your down payment on the
purchase of your replacement property. And here is the added bonus (for your
heirs, not you). When you die, your heirs inherit the replacement property at
the then current Fair Market Value. This means if they sell it the next day
for the Fair Market Value then there would be no gain and therefore no tax
would be due. Thus, the tax you deferred is forgiven forever. |
The key is never have an outright sale of your investment property. The delayed exchange discussed in this report does work and is 100% legal. Always exchange your investment property using a Qualified Intermediary. However, please do not rely upon this summary report alone. Please consult with your attorney, accountant or other professional as your individual situation may suggest different alternatives should be considered when you sale your investment property. Examples of Property That Does Qualify
Land
for shopping center Apartments
for duplex Duplex
for condo “investment” Condo
for Condo Office building for land |
For
more information about how
to sell your property fast and for the most
amount of money, or about any other of
our innovative
programs, call
948-1230 (800)375-2115 RE/MAX of Not intended to solicit properties currently listed for
sale Copyright ã 2004
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