Deferring Taxes With A 1031 Exchange: Colorado Investors Take Note
Section 1031 of the Internal Revenue Code was formulated to help investors in real estate defer the payment of capital gains taxes on the proceeds of the sale of their property. During a 1031 exchange Colorado investors can trade a current property for a new property, without ever being taxed since, technically, there is no profit. This frees the investor to reinvest and build capital without having to worry about taxes on sold properties. There are, however, some concerns with a 1031 exchange Colorado, like other states, requires the investor to strictly adhere to certain tax code stipulations. But regardless of these complicated procedures and time limitations, if handled properly with the correct information and the aid of professionals, Section 1031 of the Internal Revenue Code can be very valuable to the investor. With a 1031 exchange Colorado investors stand to gain a lot. Property is exchanged for the sake of encouraging future investment, and the investor is able to invest upward instead of downward.
There are several requirements to be met in order for an investor to take advantage of the benefits provided by a Section 1031 exchange Colorado law penalizes strictly those who do meet these requirements. An investor is advised to hire services from a person or firm well-versed in the limitations and guidelines of the Internal Revenue Code in order to fully benefit from the tax deferrals. To qualify for a full deferment on capital gains taxes on a 1031 exchange Colorado investors must meet four specific requirements. First, the full amount of the initial sale must be used to acquire the second property; any amount not used in this manner may be subject to taxation as capital gains. Next, the value of the new, replacement or exchange property must be the same or higher than that of the original property. Another requirement is the use of a qualified intermediary. This person, who must not be a relation of the investor or personally attached in any way and must be contracted before the transaction takes place, will prepare the papers for the sale and exchange and will actually hold the proceeds of the sale and pay for the purchase of the new property. Lastly, in a 1031 exchange Colorado property must be like-kind in order to qualify, meaning the property is designated for commercial or investment use. There are also various time limitations placed on a 1031 exchange Colorado, as investors will lose all benefits if they do not observe these deadlines, and will be forced to pay all taxes on the sale of the property. Under the guidelines of a Section 1031 exchange Colorado rarely offers any extensions or exceptions to these time limitations. The use of Section 1031 Colorado can be a complicated procedure, but the advantages it offers to investors can be well worth the struggle. It frees an investor, at least temporarily, from payment of capital gains taxes, allows reinvestment in better properties and allows for the possibility of saving in future tax payments due to the variation in time of the purchasing value of money.
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