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Property Management: 1031 Exchange (Avoiding Capital Gains Tax)

Property Management: 1031 Exchange (Avoiding Capital Gains Tax)

With the price of Sarasota, Florida homes up nearly 16% from the previous year. So you're ready to add Sarasota real estate investments to your property management portfolio. But then you remember those pesky capital gains tax. 

So, consider a 1031 exchange a real estate investor's best friend. Knowing what is a 1031 exchange and how to apply it can defer capital gains tax for years. 

So, take a moment to read this 1031 exchange guide. By the end of this property management guide, you'll master the importance of the 45 and 180-day rules for the 1031 exchange. Then, with Gulf Coast property management on your side, you can focus on an enhanced bottom line. 

About 1031 Exchanges and Property Management 

A 1031 exchange, also known as the Starker Loophole, comes from the IRS section of the same number. This federal provision permits real estate investors to exchange investment properties of the same type and value. 

A successful 1031 exchange means you can push federal capital gains taxes down the road for years to come. Another benefit of 1031 exchanges, means you can use this method without limit. Another bonus about 1031 exchanges is Florida doesn't impose a capital gains tax.  

The 45-Day Rule 

All financial matters about a 1031 exchange go through an escrow account. The real estate investors agree upon a qualified intermediary to handle all facets and monies about the 1031 exchange. 

Also, the qualified intermediary is the one that exchanges and is the one that ultimately transfers the money to the seller. The qualified intermediary must not have any associations with either 1031 exchange party.  

Real estate investors in a 1031 exchange have 45 days to identify at least three similar properties suitable for an exchange after the property sells. Of course, you can use our property listings as a guide to help you.  

Also, keep in mind that the listed properties must be in writing. Another thing about 1031 exchanges is that they don't grant extensions for this feature. 

Real estate depreciation is another factor with a 1031 exchange. While you can use depreciation methods as an annual tax reduction strategy, it can lead to an unwanted tax burden. For example, selling the 1031 exchange property above its actual depreciation worth adds to your deferred capital gains tax responsibility.  

The 180-Day Rule

With the sale gone through, you have 180 days to complete the swap. But, in reality, the 180-day rule begins when you enter the 1031 exchange. So, that leaves you 135 days to finish the second part of the deal. 

And in some cases, you can perform the real estate swap before selling the first property. However, in such circumstances, you must involve a 1031 exchange titleholder to maintain integrity. And once you have the exchanged property, you can turn to our sophisticated tenant screening to begin producing a stable income. 

More About Property Management 

The time for professional and courteous property management for your Sarasota properties is now. Since 2003, Gulf Coast Property Management has provided stellar property management services in Sarasota and Manatee Counties. 

We provide real estate investors with marketing services to help attract suitable tenants. And we also provide rent collection on your behalf. And if the unfortunate need arises, we assist landlords with eviction services done by the book. 

Contact our Gulf Coast team today to inquire about our property management services. We have multiple offices throughout Florida, including Sarasota.