One of the best ways to make money in Las Vegas real estate investments is to know how to save money in tax situations. At no point will we ever recommend evading taxes. However, the government knows that if investors are able to use approved programs they will retain the equity they gain and use it in other projects. The purchase and sale of homes stimulates the economy greatly and helps banks as they lend out money. Investors help with economic growth.
A Las Vegas 1031 exchange is a program where the IRS/federal government allows an investor to defer capital gains taxes. The 1031 program is a federal program so the money can be deferred regardless of the location within the United States. We suggest you talk with your tax guy about the individual specifics.
Capital gains taxes are taxes paid on the adjusted net gain on investment properties. The capital gain is the difference between the initial purchase price and the increased sales price. It is adjusted for several other costs like Realtor fees, etc. A primary residence, which is considered a property where the homeowner has lived 2 of the last 5 years, has different guidelines for capital gains tax.
The process begins when a seller begins to market a home for sale. At some point before the house records (in the state of Nevada) a Qualified Intermediary (QI) must be put in place. The title company must know of them and be in contact. The QI is a third party representative who is responsible to hold the funds while the exchange is made. They may also be holding title depending on the type of exchange.
A regular 1031 exchange here in Las Vegas takes place when the QI is put in place and then the house sells. The entire proceeds are entrusted to the QI. The clock begins to tick. The exchanger (recent seller) now has 45 days to identify a property(ies) to purchase and 180 days to complete the entire transactions. If either of these timeframes are not met the money is automatically released to the exchanger without exception and capital gains taxes must be paid. If the QI is not in place before the close or any other timeframe is not met the IRS will REQUIRE the taxes be paid. It is important to get organized from the get go.
A reverse 1031 exchange is when a home is purchased and then the other home is sold and the proceeds are applied to the loan on the recently purchased home to pay it down.
The 1031 exchange must take place with "like kind" items or real estate. This means and exchanger could exchange a house for land, another house, commercial building etc. and a trucker could exchange from a small truck to a larger one. However, an investor could not exchange a house for a truck.
The 1031 exchange must be for equal or greater value. This means that any debt must be for equal or greater value AND the equity must be for equal or greater value. If any cash reaches the exchanger's pocket in any way it is considered "boot" and must be taxed.
There are other guidelines and strategies to keep in mind. Contact us and we will put you in contact with a great QI who will take care of you before you lose your well earned money in a tax situation that doesn't need to occur.
