Capital gains are the taxes that you will be
asked to pay when you sell your property or leave it to someone in
your will. These taxes are on the gain, this means on the
difference between what was paid for the property and what it
is worth today. There is however a section 1031 tax deferred
exchange that you can use in order to avoid capital gains tax. This
can be used when you sell an investment and you are simply going to
replace it with another investment. In other words you can use the
1031 if you are buying a similar investment with the money from the
fits. This can be called a like kind exchange and when you use this
method you will have more money with which to invest.
Here are some of the basic rules and
regulations that concern 1031:
The land in question must be
rental, vacant or used for business, investment or trade purposes
and if you want to use it for a 1031 exchange then you have to have
a hold of it for a year and a day.
All proceeds must be held by
someone unconnected to you, this must be a qualified
intermediary.
You will only have 45 days in
which to choose a list of new properties. You will then only have
180 days to make your final decisions as to the property that is for
you.
You cannot change the names of
title holders. They must stay the same.
All of the money made from the
sale must be reinvested and if you do not want to pay capital gains
you must spend the entire amount on new
property.