Deferring Capital Gains Tax on Commercial & Residential Properties
ASK A NEW YORK CITY REAL ESTATE ATTORNEY ABOUT 1031 EXCHANGES
Few home owners know what commercial real estate owners and investors have known for years: that you can legally defer payment of capital gains tax on the sale of a property that was used for investment purposes.
A 1031 exchange (also called a “Starker” exchange) is a tax deferred exchange of one property for another. In the case of a homeowner, a 1031 exchange could be done for a multi-family dwelling in which the owner occupied one unit and the remaining units were rented for investment purposes.
The rules regarding 1031 exchanges are strict, especially where homeowner-investors are concerned. It is wise to work with a New York real estate attorney who has experience with a wide range of real estate issues. At the Strazzullo Law Firm, not only do we have a team of attorneys devoted exclusively to real estate law, but we have a CPA on staff to provide advice specifically about 1031 exchanges.
Strazzullo Law Firm also works with commercial clients conducting 1031 exchanges with commercial properties: retail space in one state being exchanged for farmland in another, industrial space exchanged for vacant land. You have 45 days from the date you relinquish your property to identify or enter into a contract for another property. You then have six months to close.
Contact a real estate lawyer at Strazzullo Law Firm to ensure your plans are realized with a commercial 1031 exchange.
1031 Exchanges and Homeowner Investors
If you own a 4-family complex and live in one unit, when you sell that property you will be required to pay capital gains on three of those units. This tax could amount to as much as 1/3 of your gain on the property. By using a 1031 exchange, you could take all of your net gain and use it to purchase a luxury condo in Florida as an investment.
There are very specific rules that must be followed in order to use 1031 exchange. For example, you may not receive any of the funds from the sale directly. Those funds must go to a “qualified intermediary” (a person who is not your direct agent and not your lawyer), who will close your investment transaction and pay out the funds to the seller based on a written exchange agreement.
Your Strazzullo real estate lawyer can help you identify a potential exchange property, can find a qualified intermediary, and can explain the laws relating to 1031 exchange. Contact our New York real estate law office for help.