If you own a house, condo, or even land here in Florida but reside in another state chances are you already know the frustrations, difficulties, hassles, and basic everyday challenges that at some time or another occur with this type of ownership. I understand this situation intimately because for 10 years I’ve represented a multitude of absentee owners, most living outside of Washington state. Some of my clients inherited a house after a death in the family, others acquired a condo in a divorce or relocated for a job, and lots are investors who’ve never even physically seen the property they own. Many out-of-state owners I’ve worked with do 1031 TAX DEFERRED EXCHANGES and most are without Property Management so I’ve seen rentals in just about every condition imaginable.
It’s as a leader in out-of-state owner representation that I can help you in your sale or purchase. Learning about your particular situation, asking and answering questions, establishing a trustworthy working relationship, providing referrals when needed, and clearly communicating the process and what you can look forward to is the foundation that everything else rests upon. The reality is that every modern day real estate transaction involves some element of stress but it doesn’t have to rock your world. Years of understanding and working with the nuances of long-distance transactions means that when you work with me you can look forward to the smoothest possible ownership transition.
I work with a network of professionals that understand 1031 TAX DEFERRED EXCHANGES. Why choose me as your REALTOR. I understand having the right team is very important, each professional must communicate and provide up to date information to all parties through-out the transaction.
What is a tax deferred exchange?
Internal Revenue Code Section 1031 has been a part of the Tax Code in one form or another since 1921. It allows taxpayers the opportunity to defer capital gains taxes owed upon the sale of investment or income property (not your personal residence) by exchanging the property for other like-kind property. The IRS states specific guidelines that must be followed and a Qualified Intermediary provides for a safe harbor exchange by assuring adherence to these guidelines. A myriad of court cases and IRS rulings have established the definition of “like-kind” real estate to be very broad so ask a Qualified Intermediary if you’re in doubt. A Qualified Intermediary is a professional company that specializes in processing §1031 exchanges. A Qualified Intermediary must be retained prior to the closing of the existing property. There are many types of exchanges so a Qualified Intermediary can help determine what’s best for your situation.
The Qualified Intermediary that I refer to my clients: I refer my clients to Claudia Kiernan ESQ, CES, Senior Vice President at Investment Property Exchange Services, Inc . IPX is nation’s largest and oldest independently-owned Qualified Intermediary and for years Claudia has facilitated successful exchanges for my clients. I trust IPX to properly structure and administer these complicated transactions.
What is capital gains tax? Currently the rate is 15%. Capital gains is the difference between what a property sells for and the “adjusted basis” in the property. It’s complicated stuff for the numerically challenged. When investment property is purchased, the purchase price becomes the initial cost basis. If you make capital improvements to the property, the cost of those improvements will increase the basis in the property, adjusting the basis upwards. Depreciation is a benefit to owning investment property which allows for a yearly deduction of a portion of the value of the property improvements.
Isn’t capital gains tax only 15%?No. Gain from appreciation (the increase in your property value) is taxable currently at a maximum of 15%. However, the gain from the depreciation is taxed at 25% depreciation recapture. In addition, most states will charge state tax as well (Washington is not one of them).
Is it possible to avoid paying capital gains tax, like, forever? With proper estate planning, you may never pay capital gains tax. There are many tax-planning vehicles that allow taxpayers to relinquish their low basis assets (such as real estate) without paying taxes. Gifts to loved ones, charitable contributions, and certain irrevocable trusts are just a few options available to savvy investors. Even without a complex estate plan, any property included in a descendant’s gross estate will be transferred to their heirs with a basis “stepped-up” to fair market value. This means that all capital gains in the property will be forgiven, provided the estate’s value does not exceed the statutory exclusion limitations.
How the exchange process works: Upon closing the sale of the relinquished property, you must adhere to two timetables which both begin on the date the existing property is transferred.
First, you must identify in writing possible replacement properties within 45 days of the closing. The Qualified Intermediary, such as, Claudia Kiernan, ESQ will provide you with a form on which you may list up to three potential replacement properties of any value. Once you have completed the ID form, you must fax or mail it to the Qualified Intermediary by midnight on the 45th day. IPX has a great day’s calculator to keep your transaction moving on target click here to view.
Second, you must acquire at least one of the identified properties prior to the expiration of the 180 day replacement period. Again, this period begins on the day the relinquished property is transferred. You may buy more than one of the identified properties provided they all close before within the 180 day period.