Monarch Title 1031 Exchange Service
Monarch Title has served as an experienced and trusted advisor for property exchange services for decades. Our experience and expertise ensure a smooth operation for any client property need. As part of our commitment to our clients, we are pleased to offer 1031 exchange services.
Capital gains tax can take a serious bite out of your investment profits. We completely understand when our real estate investor clients want to not only protect their potential earnings but to capitalize on their investment.
From the start of the old property’s sale, 1031 financial transactions must go through a qualified intermediary. As the intermediary, Monarch Title performs the following tasks:
- Preparing the 1031 exchange legal documents
- Holding and disbursing the exchange funds during the transaction
- Coordinating the overall exchange between all involved parties including the escrow officer and closing agent.
- Keeping the exchange within compliance for all 1031 exchange income laws and regulations
The complicated and often confusing jargon of the IRC makes it vital to hire a qualified professional to assist in filing a 1031 exchange. This is one piece of paperwork you do not want to misfile. Our work as a qualified 1031 exchange company saves our clients countless headaches and dollars yearly.
At Monarch Title Company, we are always available to assist anyone with 1031 exchange questions.
What is a 1031 Exchange?
A 1031 exchange refers to the U.S. Internal Revenue Code (IRC) section 1031. Simplified, a 1031 exchange, also called a kind exchange, trades one investment property for another.
A successful 1031 exchange allows an investor to sell or reinvest a property while lowering or deferring capital gains tax. This savings frees up capital for investments within the replacement property. There is no limit on how many times you can file a 1031 exchange. You will only have to pay tax when your final property is sold for cash many years later.
Note: The 1031 exchange rules regulate that the purchase price and the new loan be equal or higher on the replacement property.
Asset Preservation Tips
As a 1031 exchange company, we have a few items to keep in mind during your financial transaction.
‘Like-kind’ has a broad range of meanings within 1031 exchange services. Some examples of like-kind exchanges are exchanging a farm for a golf course, a retail space for a hotel, or unused land for commercial rental property. You would not be able to exchange personal property such as farm equipment for a duplex.
You would not qualify for a 1031 exchange if you intended or have lived in a residential property or if you intend to resell a property.
Common reasons to request a 1031 exchange:
- You’re seeking a property with a better ROI or you want to diversify assets
- Reinvest the proceeds of a relinquished property
- As a real estate owner, you may be looking for a managed property rather than managing one yourself
- You want to consolidate multiple properties into one or divide a property
1031 exchanges follow usually four common forms:
- Delayed exchange: The most common type of exchange. Occurring within 180 days, the relinquished property is first sold followed by a purchase of replacement property.
- Simultaneous exchange: A simultaneous exchange occurs when the replacement property and relinquished property close on the same day.
- Improvement exchange: This exchange takes place over 180 days. The real estate investor can use their tax-deferred money to improve the replacement property while it’s in the control of a qualified intermediary.
- Reverse exchange: Buy first, pay later. This exchange occurs when an investor acquires a replacement property before their property is sold. Most banks will not offer loans for reverse exchanges.
There is more to discuss concerning a 1031 exchange.
Contact Monarch Title Company with any inquiries.
1031 Exchanges & Tax Savings
1031 tax deferred exchanges allow real estate investors to defer capital gains taxes on the sale of a property held for productive use in trade, business, or for investment. This tax savings provides many benefits including the obvious – 100% preservation of equity. Investors can take advantage of exchanges to meet other objectives including:
When an investor exchanges from a high equity position, or free and clear property, into a much larger property with some financing to increase their return on investment.
When an investor exchanges into other geographical regions or diversifies by property type such as exchanging residential units for a retail strip mall.
For real estate investors with multiple properties, it is exhausting to care for each property. An example of management relief is exchanging multiple relinquished properties into either a replacement property like an apartment complex with an on-site manager or a tenant-in-common ownership program.
1031 Exchange Rules
Inside 1031 exchange services regulations, the IRS requires an investor to designate a replacement property in writing to the qualified intermediary within 45 days. While an exchanger can identify more than one replacement property, some rules must be followed to prevent any snafus in the process.
- The Three Property Rule: You can identify up to three replacement properties regardless of their fair market value.
- The 200 Rule: The value does not exceed 200 percent of the aggregate fair value of all relinquished properties.
- The 95% Rule: Properties acquired must amount to at least 95 percent of the fair market value of all identified properties.