As a company grows and prospers, it may decide to sell real property that no longer serves its needs and replace it with more suitable real property. If the disposition and replacement of real property is structured properly, taxpayers can utilize IRC Section 1031 to defer the capital gain or depreciation recapture and resulting tax arising from the sale of the old property.
To successfully structure an exchange of real estate under IRC Section 1031, taxpayers should consider several critical issues in advance of the closing, including:
- Ownership Structure: How is the old property owned? Is it in a partnership? A disregarded entity? Is there a co-tenancy structure?
- Timing: Do you have exchange timing issues? Are you buying before selling?
- Other taxes: How do transfer taxes affect the cost of your exchange?
- Value: Is the property you are selling worth more than the property you are buying? Will you make improvements to the replacement property? What are your options to maximize your tax deferral benefit?
- Financing and equity: How much equity do you have in the property being sold? How much of the replacement property purchase price do you plan to finance? Is there an imbalance that needs to be addressed?
TVPX has the expertise to guide you through the entire 1031 exchange process.
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