Getting Familiar With 1031 Exchange in New York
When most people think of investing in real estate in New York, they think of buying a property, living in it, and then selling it when they are ready to move on. What many people do not realize is that there is a way to defer paying taxes on the sale of properties by doing a 1031 exchange—a New York real estate attorney for 1031 is of advantage.
Many rules and regulations must be followed in order to complete the exchange. Without a lawyer, it would be complicated to navigate the process and ensure that all requirements are met.
The Strazzullo Law Firm is experienced at assisting investors interested in 1031 exchange in New York properties. They have helped investors to understand the complex tax rules associated with 1031 exchanges, offered guidance, and how to best structure the exchange to maximize the benefits.
What Is 1031 Exchange?
1031 exchange commonly refers to an exchange under Section 1031 of the Internal Revenue Code as a “like-kind exchange.” It means the exchange must be between two properties of equal or greater value, and the properties must be of the same type. In order for a property to qualify as like-kind, they must hold it for investment or business purposes and not for personal use.
The underlying principle of a 1031 exchange is a way for investors to trade one investment property for another without paying taxes on the sale of the first property.
It can be an attractive option for investors looking to grow their portfolios without being subject to taxes on their profits. Many would recommend a transaction of this magnitude to have the expertise of qualified New York real estate lawyers.
A 1031 exchange can be a great way to defer taxes on the sale of investment property, but it must be correctly done to avoid penalties.
1031 Exchange New York Rules
Investors must follow 1031 exchange New York rules, such as –
List Your Property
When you are ready to sell your investment property, you cannot just put it on the market for a non-1031 sale. You have to follow the rules of the 1031 exchange in order to defer paying capital gains tax on the sale. That means you must list your property for sale with a qualified intermediary.
Obtain a Qualified Intermediary (QI)
A qualified intermediary is a middleman who helps facilitate the sale of a property between a buyer and a seller. They hold on to the money deposit and other funds that are part of the transaction and prepare and distribute the documentation.
A qualified intermediary can be an individual or a company, but it must be licensed and bonded in order to operate. Also, they must be a neutral third party and cannot have any financial stake in the transaction’s outcome.
Forty-five-day Deadline
The most important deadline is the 45-day period in which the investor must identify replacement property. The investor must give the name, address, and other important information that relates to the property.
This period begins on the day of the sale of the original property. If they do not identify the replacement property within 45 days by midnight, the investor will be required to pay taxes on the sale.
One-hundred-eighty-day Deadline
An investor with 1031 has 180 days to close on the relinquished property. It is because the IRS requires that the investor reinvest the proceeds from the sale of the property in order to avoid paying taxes on the gain.
The 180 days start with the sale of the property. The investor will have to pay taxes on the gain if the property is not bought within this time frame.
How To Qualify for a 1031 Exchange?
To qualify for 1031 in New York, an investor must –
- Reinvest the entire amount into one or more similar. For example, you could reinvest a rental property’s sale into another replacement property. It means you will not have to pay any capital gains taxes on the sale.
- Purchase one or more replacement properties with the same or greater amount of debt as the sold property.
Properties that would qualify for the 1031 exchange New York rules include –
- Commercial Buildings
- Multifamily Properties
- Farmland
- Vacant Land Earmarked for Future Commercial Use
Why Do You Need a Real Estate Attorney?
Many people do not have a clue of what is involved. In fact, some might ask how to do a 1031 exchange. A New York real estate attorney, is invaluable in this situation.
New York, real estate lawyers, can help you by providing guidance on the Internal Revenue Code, helping to identify potential replacement properties, and reviewing contracts. They can also handle the paperwork and structure the exchange to minimize pitfalls.
Our New York Real Estate Attorney Can Help
When making a major investment in real estate, it is crucial to have a real estate attorney helping you every step of the way. It is especially true when considering a 1031 exchange.
Although investment in real estate can be a great way to generate income and build wealth, several legal considerations must be considered when investing in real estate. It is always best to consult with a professional New York real estate attorney with years of experience dealing with 1031 exchange New York rules—the Strazzullo Law Firm.
Without the guidance of this hard-working lawyer, an investor could face costly mistakes and delays. We can help ensure that the exchange is completed correctly and promptly. Message or call us today for a free initial consultation.