Capital Gains Without Tax

1031 Exchanges allow you to defer the taxes over capital gains generated on the sale of an old property to be exchanged for a new property. Sooner or later, whoever wishes to make money in the Real Estate market in the United States understands that this is a serious mechanism to consider.

Popular wisdom has many proverbs allusive to the details, in which the part that world investments transactions play can hardly be ignore. Sometimes this transactions looks like angels, sometimes like demons. In the case of Real Estate and in the context of the opportunities that real its boom presents in the South Florida area, thousands or millions of dollars can be spared.

A simple section of the American revenue code has a lot to say about it, even if it is simple only in appearance. Basically, a 1031 Exchange defers the payment on taxes on the capital gains generated by the appreciation or gained value of a property, of which in the United States could mean many thousands of dollars. There are no major restrictions for foreigners.

The key is to exchange, selling for 200 something you bought for 100 while differing the tax payment to Uncle Sam, for which is necessary to purchase another property of equal or higher value. Whoever wants to make money in the Real Estate business in the American Union, understands that sooner or later he or she has to take into consideration this "detail" which translates into flexibility and purchasing power.

1031 Exchanges are a master key to be able to exchange, diversify and consolidate investments. The trick is to delay the tax payment to the precise moment. To exchange from an apartment or business of $200k to one for $300k, and from that to another one for $400k, and keep going perhaps to another much later for $700k and on and on up the ladder until the market allows you to turn square meters into green bills.

Economic Incentive

The 1031 Section of the Internal Revenue Code of the United States was written in the 1920s. What most likely started as an instrument to stimulate the economy worked for what was intended during those years of the Great Depression, explains Ramon F. Guerra, a consultant for the1031 Exchange Experts, LLC the leader company in its category founded some 18 years ago by the true guru in the subject, the public accountant Gary Gorman.

So the question would be, "why pay thousands of dollars to the Revenue Service when you can accomplish these transactions that would free your capital gains so you can reinvest them?" It's good business for everyone. It helps you defer the taxes and it stimulates the economy with the addition of many jobs for the ones that work in construction.

The 1031 Exchange should be done through a Qualified Intermediary to prepare the necessary documentation and to retain the transaction money until the process is completed. An enterprise like the 1031 Exchange Experts, with headquarter offices in Denver, Colorado, does so many transactions of this kind that they keep an active telephone line for free consultation 7 day a week. The fees charged are competitive in the market, for such transactions.

"We only do 1031 Exchanges; we are not realty agents that happen to do 1031 exchanges. And because of it we provide a series of services that other companies could not provide because they would lose in quality of service," says Mr. Guerra. Mr. Gorman's company does not keep one cent of the interest that the client's account earns and it segregates all accounts: one for each transactions to protect the people it serves. The client can tract the activity of his money 24 hours a day, seven days a week and each account is secured during the transaction period.

One Year and a Day

Gary Gorman is the author of a book which title says everything about the potential of the concept, especially of the dynamics of the concept of Real Estate and it reads: Exchanging Up! How to Build an Empire in Real Estate Without Paying Taxes Using the 1031 Exchanges.

The benefit applies to all Real Estate purchased for the purpose of investment or business or even rent, meaning not for personal property use. It could be office buildings, condominiums for renting, lots, warehouses, malls, preconstruction projects, even airplanes and vacation homes [1031 vacation home update: May 2007] and, for this last subject certain rules apply.

To do the transaction is necessary to have the property in your possession for a certain amount of time in order to find no problems with the Revenue Agency, at least one year an a day. "It should be two taxable years, to consider the property completely in you possession, of which one year counts for one year and one day counts for the second twelve months," explains Guerra.

"You want to sell a property for 2 million, buy one for 5 million and save on the taxes. Once you have a copy of the closing contract for your old property, you or your agent should get in touch with a firm such as the Exchange Experts to request information. We would ask that you send us via fax, the name, phone number and other information of your broker and a copy of the sales contract plus other applicable information to start the process and we would take it from there. Six basic rules apply, like having no more than 180 days to purchase the new property.

The 100% of the gain has to be reinvested in the new property if you want to defer all the taxes. All the money is kept in a separate account, that you can access any time, another exclusive service of our firm, until the exchange is completed. Nor the owner or anybody touches the money during the process. One year and a day later, the elevator is ready to go up another floor.

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