We recently purchased a new home and our real estate agent was a key part of the process. Whenever buying or selling a property, advisors such as your real estate agent and accountant are crucial. This Thankful Thursday, we discuss the role of your professional advisors and why they are an important part of your 1031 tax-deferred exchange.
When selling a property that has been held for business use or investment, you are subject to several federal taxes including:
- Capital gains taxes which could be as high as 20% depending on your income;
- The 3.8% Net Investment Income Tax, formerly known as the Medicare tax, which applies to unearned income, including rental income and capital gains for high earners;
- Depreciation recapture at the rate of 25%
In a 1031 exchange, not only do you defer the capital gains taxes, but you also defer depreciation recapture and avoid the 3.8% Net Investment Income Tax on your capital gains. Additionally, as the deferred gain does not count as income for the current tax year, the rest of your income may be taxed as a lower level. A 1031 exchange is a great tax strategy to keep more of your money but it is not for every situation and that’s where your advisors are so important.
Your tax advisor plays a key role in determining whether or not you are maximizing your deferral by replacing the net value and equity of the relinquished property. More importantly, your Exchange Officer at 1031 CORP. only knows a very small piece of your overall tax picture so we don’t know if a 1031 exchange is the best course of action for you. As a Qualified Intermediary, 1031 CORP. cannot provide tax or legal advice but we can raise red flags and alert you and your advisors to any issues or concerns that may arise during the exchange process. Our Exchange Officers can direct your advisor to the section(s) of the regulations and relative tax cases to help you and your advisor decide how to proceed if needed.
1031 CORP. is your partner in the exchange process. We communicate with you and your professional advisors throughout the exchange while keeping the process simple for all. Learn more about the 1031 CORP. Advantage.