Clearwater Beach Real Estate – What is a 1031 Exchange?

What is a 1031 Tax Deferred Exchange?

Clearwater Beach Florida – In simplest terms, a 1031 exchange lets the owner of an property exchange it for another property of a similar nature without being charged capital gains tax in the process:

For example: Suppose someone purchases a Clearwater Beach condo as an investment for $300,000 and then sells it for $400,000 at a later time.Under normal circumstances, the $100,000 difference is taxed as capital gains, which is the profit earned on the sale of non-inventory assets. However, should that same owner decide to sell their Clearwater Beach Condo for  $300,000,  in the IRS’s eye’s they actually “swap it” for a like kind condo for say $500,000 in Clearwater Beach Florida or anywhere else for that matter using a 1031 exchange,then the capital gains tax can be deferred until a later time.

For obvious reasons, benefiting from a 1031 exchange is a topic of considerable interest to investors in Clearwater Beach real estate.

What Are the Requirements and Risks of Using a 1031 Tax Deferred Exchange?

There are numerous rules that have to be followed for a Clearwater Beach real estate investor to benefit from a 1301 exchange. In this as in most related matters, compliance is of the utmost importance because failure can result in serious consequences.

For starters, an property used in a 1301 exchange must either be an investment or have some kind of productive use in a business. Please note that these criteria exclude the swapping of inventories, which are held for the purpose of resale. For example, an investor can swap a condo in Clearwater Beach being rented out to tenants but not a beach condo purchased for fix and flip because one is being used to earn revenue while the other is being held for resale – make sense?

Furthermore, any property used in a 1031 exchange has to be swapped for another property of a similar nature. For example, a building (ex. condo, apartment building, rental home, etc.)  can be swapped for either land or a building used for an unrelated purpose, but not for partial ownership of businesses. Please note that the exact limits can be confusing, meaning that interested Clearwater Beach real estate  inventors should consult specialists before entering into their 1031 exchanges. We can certainly recommend local experts to assist you.

Finally, there is are time limits imposed on a 1031 exchange when it is being performed through intermediaries. First, the owner has 45 days to designate an asset or assets with which to replace the asset being swapped. Second, the owner has the earlier of either 180 days or the due date of his or her tax return with which to close on the designated asset or assets. It is important to note that the timers for both time limits begin running as soon as the asset to be swapped has been sold through the intermediaries.

Failing to meet these conditions means that the owner will be charged capital gains tax. Further unpleasant consequences can also occur depending on the exact circumstances of the 1301 exchange.

Finding Experienced Real Estate Agent Advisor in Clearwater Beach when doing a 1031 Tax Deferred Exchange

A 1031 exchange is both complicated and filled with pitfalls, meaning that interested investors should have experts assisting them throughout the process for the best results. That team of experts should included experienced CPA’s, Intermediaries, lawyers and real estate advisors.  As a certified Resort and Second Home Property specialist, Certified International Property Specialist, Certified Seller Representation Specialist and Certified Luxury Home Marketing Specialist I have invested in the training and expertise to guide our Clearwater Beach 1031 clients smoothly and successfully through this process.  Since every “i” must be dotted and every “t” must be crossed and decisions must be made relatively quickly knowing the 26 miles of beach properties and what the expected income potential on various properties is have been very helpful to our clients success.

If you would like to discuss doing a 1031 exchange in the Clearwater Beach, Tampa Bay area we offer a complimentary consultation to see if we can help you achieve your Clearwater Beach Real Estate investment goals. Call the Sandbars To Sunsets Team at 727-710-8036 and Cyndee & Jack Haydon, Realtors® in Clearwater Beach Florida for more information, especially if it’s your first 1031 exchange sale.

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