Steamboat Springs 1031 Exchanges

What is a 1031 Exchange?

The goal of a 1031 exchange is to enable you to posses more money in the present, with the intention you will invest this money in more real estate. A 1031 exchange enables the profit from selling your property to be deferred from taxation until a later date. 1031 exchanges are therefore used when you are selling one property and purchasing another. This replacement property should be of equal or greater value than the value of the relinquished property.

How is this different than normal taxation?

In typical transactions, the government immediately taxes the profit gained by the property owner. Therefore if you are interested in reinvesting back into property you will be taxed first. With a 1031 exchange, you are taxed at a later date on your profits, so you can invest more of your money.

Why is this possible?

Since you are reinvesting the profits into another property, the economic benefits are not yet taken as a profit to be taxed, which is the governmental reasoning behind instituting the 1031 exchange

When should I pursue this?

Anyone who is interested in selling one investment property and purchasing another should look into pursuing this!

Do I have to do this within a certain period of time?

There is a timeframe involved in claiming a 1031 exchange. Once the relinquished property is given up you have 45 days to identify a replacement property. After the property is identified you have 180 days, or until the due date of the federal tax return for that year, whichever date comes first, to acquire the replacement property.

So how does a 1031 Exchange work in the long run?

This is a tax-deferral and not a tax-free option. Upon the sale of your replacement property both the originally deferred gains in addition to your newly acquired profits are subjected to taxation.

I’m interested. What should I do next?

To pursue a 1031 exchange you must contact a Qualified Intermediary (QI), who will help you follow the process to complete an exchange. It is the job of the QI to hold onto your funds, and he/she will deliver this asset to the closing agent of your replacement property. Without the services of a QI the IRS may not deem your transaction as a 1031 exchange.

What is a Reverse 1031 Exchange?

A reverse 1031 exchange is a 1031 exchange, but backward. It involves you purchasing the replacement property before selling your relinquished property. Reverse exchanges are often referred to as “parking agreements”, and tend to be more involved and expensive than forward 1031 exchanges. They are a better option to pursue if you find a replacement property before being able to sell your relinquished property.

Can my vacation property be used in a 1031 exchange?

It may be possible to use your vacation property in a 1031 Exchange. It may require you to state your intents for the property to double as an investment. It is especially important you contact your financial advisor for your personal options that may deal with your circumstances more specifically.

What does the term “boot” refer to?

Boot refers to the taxable items involved within your 1031 exchange. Boot is divided up into two categories, cash and mortgage. Cash boot is used when the value of your replacement property is not of like kind of your relinquished property. Cash boot, which can either be cash or personal property, is given to account for the difference between the two values and is a taxable item. Mortgage boot refers to the difference in mortgage payments between your replacement property and your relinquished property.

What should I do if I still have questions?

While contemplating benefits of 1031 exchanges we strongly encourage you to consult a tax official to discuss any unanswered questions or special circumstances, which may apply to you specifically. You can also examine the For Further Information Page for help in the Steamboat Springs area.

Jon Wade  – Broker Owner  Colorado Group Realty, LLC
970-819-6930 or jon@mybrokers.com
509 Lincoln Ave Steamboat Springs, CO 80477