1031 Exchanges - You REALLY need to talk to your accountant!

1031 exchanges - they aren't for everyone. As a matter of fact they are only for a very few. The Internal Revenue Code Section 1031 states:

"No gain or loss shall be recognized if property held for productive use in trade or business or for investment purposes is exchanged solely for property of a like-kind."

To make a long story short,(and noting that I am neither a 1031 Specialist or an Accountant) the 1031 exchange is a tool for investors only. A 1031 exchange can not be used for selling one's personal residence. The rules for a 1031 exchange are very strict and precise. The property being exchanged has to have been an investment property and needs to be exchanged for another investment property within a specific amount of time.

Needless to say I am writing about this because recently several homeowners have mistakenly thought that they could circumvent the 2 year residency rules (necessary to benefit from the Capital Gains home sales tax break) by participating in a 1031 exchange. Personal residences do not qualify as investment properties. After conferring with accountants as well as 1031 Qualified Intermediaries it is once again important to say - consult with an accountant, 1031 exchange specialist, etc before thinking that you have found the perfect tax loophole. 1031 exchanges are a great tool - but they are for investors investing in investment properties only.

For more info go to:

http://1031.org

http://starker.com

Please call your Accountant!

Please, please call your accountant before you consider selling your home.

Recently, we have had numerous people that were deciding to sell their home - without thinking about the tax consequences. The tax laws changed in 1997. If you have lived in your home for more than two years you are basically home free. Uncle Sam allows you to pocket up to $250,000 in profit if you are single and up to $500,000 if you are married. Yes, you can pocket it if you wish or you can put this money into a new home. The important thing to remember is TWO - 2 Years. This is very rigid - If you are even just a few days shy of this anniversary you will have to pay tax on the profits. This past year has proven to be so very profitable for so many people that own homes here in Arizona. It is a shame to give a huge percentage to Uncle Sam if you don't have to. So, the lesson here is before you even think about selling your home - Talk to your accountant!

For more information:

Bankrate article