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1031 Exchange

What is a 1031 Exchange?

Simply stated, it is a way for owners of investment real estate to buy and sell property and defer payment of any capital gains taxes by reinvesting their money in other “like kind” property.  These transactions are known as deferred exchanges or 1031 Exchanges.  “Like kind” is a bit of a misnomer in that it can really be any type of real estate held for business or investment purposes; so, for example, an apartment building could be exchanged for vacation villa or a beachfront lot.  The key is that these code provisions relate to the sale and purchase of properties held primarily for business or investment.

Section 1.1031 of the IRS Code lays out in detail the procedure for turning a sale and purchase transaction into a qualified 1031 exchange thereby deferring your capital gains tax obligations. The good news is that the provisions of this IRS code apply to the U. S. Virgin Islands.

Essential Elements of a 1031 Exchange

One of the rules is that you are not allowed to receive or touch any of the money from the sale of your relinquished property.  Instead, the rules require that a “safe harbor” or Qualified Intermediary receive, hold and safeguard the proceeds of the sale until the exchange is completed.  There are bonded companies that specialize in accommodating 1031 Exchanges.

The rules also require that certain time limits must be adhered to.  You can identify up to three possible “replacement” properties in which to invest, but must do so within 45 days of the close of escrow on the first property.   The ultimate acquisition of the replacement property must be completed within 180 days.

To defer all tax obligations, you must reinvest 100% of the sale proceeds (including any amounts used to pay off existing loans) into a “like kind” property or properties of equal or greater value than the property you sold.

The above outlines only the most basic elements of an exchange.  While the rules in practice are quite simple to follow, you need expert advice to insure that you are following all of the rules and therefore benefiting from the 1031 tax savings provisions.  Get the advice of your attorney or tax consultant in selecting a Qualified Intermediary.  Their fees vary and their methods for holding the exchange proceeds differ.  It is also important to know if the Qualified Intermediary will be investing the funds and in what type of investments.

Buyer Resources

Essential resources tips to help you purchase real estate in the United States Virgin Islands.

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Suzanne Mabe, CRS, GRI

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    Real Estate Broker/Owner
    Email: Suzanne Mabe
    Direct Line: 340/777-5564
    eFax: 440/756-7052
    Mobile: 340/998-7701

Luxury St. Thomas Real Estate

The Suzanne Mabe Real Estate is a full service and high energy real estate team serving the United States Virgin Islands. Our focus is to create unparalleled customer experiences that transform your visions into reality. Let us guide you through some of St. Thomas’s top communities and help you find the home right home for you.

St. Thomas MLS

The listings on this site are displayed courtesy of the St. Thomas Board of Realtors MLS system for the consumers personal, non-commercial use.  Information is deemed reliable but is not guaranteed.  Listings held by brokerage firms other than the owner of this website are marked with the words Broker Reciprocity.  This website may not display the entire St Thomas MLS database as some owners may not have given information for their listing to be displayed.

Copyright © 2015 All Rights Reserved. All photos and text are the intellectual property of Suzanne Mabe Real Estate and may not be copied or used without express permission of the owner.

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