The 1031 Exchange Texas Guide
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We are The 1031 Exchange of Texas, dealing with 1031 exchanges in the real estate industry, and we are currently based in College Station. The 1031 exchange is a process that allows you to defer capital gains taxes when selling your investment property. When most people sell their homes, they must pay capital gains tax on the sale. However, if you complete a 1031 exchange on your property, you can defer those taxes, and 1031 exchanges are a great way to invest in new property without paying any additional taxes. There are four types of 1031 exchanges: delayed, simultaneous, reverse, and construction. Each type has its own set of rules and regulations.
Delayed Exchange: In a delayed exchange, also known as a forward exchange, you first sell your house and then use the proceeds to buy a new home, which is called flipping. The two sales must close on the same day, so you must designate one of the 1031 exchange qualified intermediary Texas professionals need to hold the proceeds from the sale of your first property until you purchase the new property.
Simultaneous Exchange: A simultaneous exchange, also known as an exchange up, is when you sell your property and use the proceeds to purchase a new property on the same day. This type of 1031 exchange is less common because it can be challenging to find a buyer and seller willing to close on the same day.
Reverse Exchange: A reverse 1031 exchange is when you purchase the new property first and then sell your old property, and this type of exchange can be helpful if you are having trouble finding a buyer for your old property.
Construction Exchange: A construction 1031 exchange is when you sell your property and use the proceeds to purchase a new property that is not yet built. This type of 1031 exchange can be helpful if you are looking to build a new home or investment property.
If you are thinking about a 1031 exchange, consult with a qualified tax professional from our company who will ensure that you are following all the rules and regulations.
“Russell has done multiple Tax Deferred Exchanges for us. We’ve always had a good experience. Even when things get changed on him at the last minute he always comes through!” – Brady Brittain with Brady Buys Homes
Texas 1031 Exchange Rules and Regulations
The 1031 exchange is a method for investors to postpone capital gains taxes on the sale of an investment property by reinvesting the proceeds into a new one. For the exchange to be valid, these are the 1031 exchange rules Texas investors must adhere to:
- Both properties must be held for investment or use in a commercial or trade.
- You must select a replacement property within 45 days of selling your original property.
- The two properties must be similar in kind.
- Within 180 days of the sale of the original property, you must complete a transfer on your end.
- The property must be equal to or greater in value than the one you’re trading for.
- Any money made from the sale must go towards acquiring the new property.
- You can exchange multiple properties, as long as they are all for investment purposes.
If you have any questions about whether your situation qualifies for a 1031 exchange, please consult with a qualified tax professional.
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3 Basic Requirements of a 1031 Exchange in Texas
To complete a Texas 1031 exchange, you must adhere to the following three basic requirements:
- To qualify, the property being swapped must be held for investment or utilized in a trade or business. Property not considered qualifying includes that which is primarily intended to be sold, stock in trade, traded in commodities or other goods, inventory, or stored as raw materials.
- If you identify a Replacement Property within 45 days of the sale of your first house, you must purchase that property within 180 days after the date of sale. If you discover a Replacement Property in the 45-day identification period but then buy only some of the property identified without restrictions, you must not withdraw any remaining funds from your exchange account before the allotted time elapses. If you close your exchange account improperly, the transaction will be lost, so to be safe, the funds should not be taken out until after the replacement period has expired or until all eligible properties have been bought. The total value of the first property’s sale proceeds must be reinvested into one or more replacement properties.
- Properties must be “like-kind.” Real estate property in Texas is considered like-kind to real estate property located anywhere in the United States, however, only property that is in the same product class is considered like-kind to other personal property.
If you are considering a 1031 exchange in Texas, it is crucial to seek professional tax and legal advice to ensure that you are following all the proper rules and procedures.
We Are Among The 1031 Exchange Companies Texas Investors Trust Most
The 1031 exchange companies Texas investors decide to work with make sure their clients have a complete understanding of how the exchanges work, and our company – The 1031 Exchange of Texas, is the most trusted by business owners because of our top-tier services. The following are some of the most common terms used by 1031 exchange companies in Texas:
Like-kind Property
This is a property that is similar enough in nature and character to be exchanged for another piece of property. The IRS doesn’t give clear guidelines on what exactly counts as like-kind property, so it’s best to consult with one of the 1031 exchange companies Texas investors trust most. Your tax advisor may also help to determine if your planned exchange qualifies and if the exchange in question adheres to the federal income tax return terms.
Boot
This occurs if you receive any cash or other form of non-like-kind consideration during a 1031 exchange in Texas. For example, if you sell a rental property for $1 million and use $900,000 of the proceeds to buy a new investment property, the $100,000 difference is considered boot, and you’ll have to pay capital gains taxes on that amount.
Investment Property
Any property held for the purpose of earning income or appreciation. This can include rental properties, commercial buildings, vacant land, and even some personal residences (if they’re rented out).
Excluded Property
Certain types of property are excluded from any Texas 1031 exchange, which include your primary residence, vacation homes, securities, commodities, or other property held for sale, and intangible assets.
Exchange Period
The exchange period in a Texas 1031 begins on the date you sell your old property and ends on the earlier of the following two dates:
– The date you acquire your new property
-The tax year following the tax year in which you sold your old home.
Same Titleholder
To complete a 1031, you must use a Qualified Intermediary (QI) to hold the title of your property during the exchange process, and the QI must be a neutral third party who is not related to you.
The 1031 exchange process can be complex, so it’s essential to work with a 1031 exchange qualified intermediary Texas property owners can rely on, who is experienced in handling these transactions. Texas is a prerequisite state that prevents an investor from doing 1031 exchanges on their own. The expert involved must be outside the investor’s state of residence and cannot be the investor, work for or be married to, or connected with the investor in any manner. Other commonly used terms include tax-deferred exchange, commercial real estate, taxable gain, real estate agents, and internal revenue code.
