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Starker / 1031 Exchanges
Preserving Wealth Through Lawful Tax Mitigation
This is a basic summary of Starker/1031 Exchanges. It is provided as a courtesy and must only be used for informational purposes. This information is not legal or tax advice. Investors seeking to mitigate the tax consequences of real estate transactions must seek the services of a Qualified Intermediary. An attorney and a CPA are also recommended. I am pleased to assist my investor clients with the purchase and sale of property as a Wisconsin-licensed Real Estate Broker. Realtor Michael Kwiatkowski is also a member of the Wisconsin Real Estate Exchangors (WREE). However, I am not a Qualified Intermediary, a CPA, or an attorney. Clients seeking a Starker/1031 Exchange will be referred to these parties for assistance. Realtor Mike Kwiatkowski loves to speak with his clients about real estate investments. Please click here to start a conversation with him today. Mitigation and deference of capital gains taxes gives investors an advantage on their road to financial success. Sellers of investment properties must pay capital gains tax. At this time, the capital gains tax rate is 15% of all profit made on the sale of an investment property less the cost of certain improvements. Depending upon numerous factors, 25% of any depreciation claimed can be recaptured by taxing authorities through tax on the sale of the property. IRS Section 1031 permits a delay of gains made through appreciation if the following conditions are met: 1. The sold investment property is replaced with other investment property. Neither of the properties may be the investor’s principal residence. 2. There must be an exchange of one property for another property. Technically speaking, an exchange is not a sale followed by a subsequent purchase. 3. The replacement property must be located in the United States. The property must be held for productive use in a trade or business, or for investment. Exchanged properties need not be for the same type of business or investment; for example, a duplex may be exchanged for rural farmland. Prudent investors always determine the tax consequences of a standard sale with capital gains tax paid versus a tax-deferred exchange. A CPA should prepare these figures. Depending upon circumstances, it may actually be to the investor’s benefit to pay the capital gains tax versus engaging in a Starker/1031 Exchange. Starker exchanges have time limits. Potential replacement properties must be identified within 45 days of transfer of the original (the sold) property. Replacement property or properties must generally be purchased within 180 days of transfer of the original property. A special exemption exists allowing the purchase to be made within 180 days of the due date (counting extensions) of the taxpayer's return of the tax imposed for the year in which the transfer is made. These time limitations can never be extended. There are other rules and limitations regarding Starker Exchanges. Investors must seek out competent assistance from a Qualified Intermediary and potentially from a CPA and an attorney. I am a Wisconsin-licensed Real Estate Broker and a member of the Wisconsin Real Estate Exchangors (WREE). I am not a Qualified Intermediary, CPA, or an attorney. Clients seeking the benefits of a Starker Exchange will be referred to these parties for assistance. Realtor Michael Kwiatkowski looks forward to speaking with you about real estate investments! Please click here to start a conversation with him today.
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