If you have a rental property and you are looking for a Telluride vacation home or if you already own a rental home in Telluride and you would like different rental property; perhaps a larger home or different location, or a property that can generate more income and you want to defer capital gains taxes and recaptured depreciation taxes a 1031 exchange might be a great option for you. Section 1031 has been in the tax code since 1921 and there is some talk out there about this being a chopping block item for the new federal administration so you may want to act quickly. 1031 exchanges can be complex and it’s important to follow the rules the IRS has outlined so when you’re ready to do a 1031 exchange, we’ll work with an attorney and your accountant to get this done.
There are many tax advantages to owning rental property, including depreciating the property and IRS code section 1031 allows owners to sell rental property and defer the taxes on any profit and recaptured depreciation.
Here’s how it works:
- The exchange must involve two like-kind properties, one being sold and one being bought within a certain time frame.
- Like-kind refers to the nature of the investment not the property form. (IE: one rental property for another would qualify).
- You must identify the relinquished property as a 1031 exchange before the first sale is made.
- The new replacement property must be at least the amount of the sold property to avoid paying taxes.
- The new replacement property must be identified within 45 days and purchased within 180 days after the original property has been sold.
- Once the original property has sold, the money is required by the IRS to be held by a qualified intermediary and all the cash must be used to purchase the new property.
- You must take title to the new property in the same name as the original property.
The 1031 exchange can be an amazing tool for your investment properties. The process is intricate and complex. There are restrictions on owner usage and a minimum requirement for rental nights. Talk to an attorney or cpa about your specific situation and contact me to sell and buy your exchange properties.