California 1031 Exchanges

Los Angeles 1031 Exchanges

Are you looking for help with a 1031 real estate tax deferred exchange? For quality legal representation in Los Angeles or Los Angeles County contact the Law Offices of Jeffrey Williams. In addition to 1031 exchanges, we also represent investors, buyers, and sellers in commercial real estate transactions.

1031 Exchanges in Los Angeles

When a person sells an investment property, he or she is typically required to pay taxes on the profits earned from the property sale. However, there is an exception. People who have sold certain investment properties may defer taxes by investing in a new property in accordance with federal tax laws.

Utilizing a 1031 real estate tax deferred exchange, you can defer taxes. An experienced real estate attorney can help you through the process of 1031 exchanges. A properly structured 1031 exchange allows an investor to sell a property, and then to reinvest the proceeds in a new property and to defer all capital gain taxes.

IRC 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.”

A 1031 Exchange is a very powerful tool.

Consider the following 1031 Exchange example:

An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes when the property is sold (depreciation recapture, federal and state capital gain taxes). That leaves only $130,000 remaining to reinvest in another property.

Assuming a standard 25% down payment (required for an investment property) and a 75% loan-to-value ratio, the seller would only be able to purchase a $520,000 new property.

If that same investor chose to utilize a 1031 exchange, he or she would be able to reinvest the entire $200,000 of equity toward the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios.

1031 Exchange’s “Like-Kind” offers Opportunities

As the above example demonstrates, 1031 exchanges protect investors from capital gain taxes as well as facilitating significant potential portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is crucial to have a comprehensive knowledge of the exchange process and the IRC. There are many stumbling blocks. For instance, an accurate understanding of the key term like-kind – often mistakenly thought to mean the same exact types of property. As it happens, there is wide latitude in the code and that alone can broaden the possibilities that might have been dismissed or overlooked. Real Estate Attorney Jeffrey Williams is your resource to obtain accurate and thorough information about the entire exchange process.



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