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Thanks to Internal Revenue Code (IRC), Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”
An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another property.
Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $520,000 new property.
If the same investor chose to exchange, however, he or she would be able to reinvest the entire $200,000 of equity in the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios.
Timing is important. Certain actions must be taken in sequence and exchanges must be completed within strict time limits.
The Net Lease Group’s 1031 Concierge™ service advises and assists real estate owners and investors with the disposition and acquisition of commercial real estate while satisfying I.R.S. rules and regulations regarding tax deferred like-kind exchanges as detailed in section 1031 and 1033 of the Internal Revenue Code.
The Net Lease Group’s 1031 Concierge™ service evaluates, selects, negotiates, acquires and finances net lease investment assets of all types to satisfy tax deferred 1031 and 1033 like-kind exchanges on behalf of NLG’s clients.
NLG’s 1031 Concierge™ provides the following services and benefits to make your 1031 exchange an efficient, stress-free, and enjoyable process: