1031 Exchanges Essay -- essays research papers

Final Paper 1031 alters Insight for the real estate investorThis paper is written to provide a reasonably encompassing overview of Section 1031 of the IRC as it pertains to real estate transactions, and to offer some thoughts on the wealth-creation advantages that 1031 Exchanges offer.For the greater part of the last decade, we in the United States have been witness to a consistently appreciating real estate market. Sometimes it seems that almost anyone who has purchased a house, piece of property, or other real estate type enthronization has done in truth well. I personally can point to a few examples where friends of mine have made several hundred times their first home rightfulness investment. In sales of primary homes thither is a tax advantage that the IRS permits, as long as the proceeds are invested into another home, the capital gains on your existing home sale are exempt from taxation. However, if the property in question is an investment, a capital gain tax is assess ed every time there is a sale that includes a gain. A tax strategy that investors can employ in such situations is to transfer their investment property for another investment of like-kind, this is a Section 1031 Exchange. Under Section 1031, if all its guidelines are met, the exchange is not a taxable event. Also, similar to tax rules regarding reorganizations - in a 1031 Exchange there is no taxable event and therefore no step-up in basis.The wealth-creation advantage of a 1031 Exchange can be viewed in the chart below. The example depicts two sales of real estate, the initial assumption is that the property has been completely depreciated and the entire $100K of initial equity is a capital gain.Event 1Event 2Typical Sale1031 ExchangeInvestment experiences 20% appreciationTypical Sale1031 ExchangeEquity 100,000100,000160,000200,000Tax20,000016,0000... ...y in spite of appearance the United States and personal property used predominantly outside the United States are not propert y of a like kind.(B) Predominant use boot out as provided in subparagraph 1 (C) and (D), the predominant use of any property shall be determined based on(i) in the case of the property relinquished in the exchange, the 2-year period ending on the date of such relinquishment, and (ii) in the case of the property acquired in the exchange, the 2-year period beginning on the date of such acquisition. (C) piazza held for less than 2 years Except in the case of an exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection(i) but the periods the property was held by the person relinquishing the property (or any related person) shall be taken into account under subparagraph (B)(i), and (ii) only the periods the property was held by the person acquiring the property (or any related person) shall be taken into account under subparagraph (B)(ii). (D) Special rule for certain property Property described in any subparagraph of secti on 168 (g)(4) shall be treated as used predominantly in the United States.