Beware of These Pitfalls When Selling Property in a 1031 Exchange

Looking to trade in an old investment property for something new? Section 1031 of the Internal Revenue Code allows taxpayers to defer the recognition of gain on business or investment property exchanged for like-kind property. Although this seems simple on its face, below are several common pitfalls.

  • Failure to properly use a qualified intermediary (also referred to as an exchange facilitator)

The word “exchange” is applied quite literally in Section 1031. You must exchange the old property directly for the new property, without receipt of any sale proceeds. Because the odds of finding someone who is willing to swap properties is incredibly low, most people must use a qualified intermediary to comply with the “exchange” requirement of Section 1031. The funds from the sale of the relinquished property are paid directly to the qualified intermediary, who uses the funds to acquire the replacement property. The qualified intermediary also handles the exchange of title with the buyer of the relinquished property and the seller of the replacement property. You may need to come up with separate liquid funds or financing if the replacement property is more expensive than the net proceeds from the sale of the relinquished property.

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Top Five Estate Planning Items You Shouldn’t Ignore

1. Estate Tax and Gift Tax Exclusion Amounts for 2016

The estate and gift tax exemption amount is presently $5.4 million for 2016 and the annual exclusion for gifts is $14,000.00.

What does this mean? It means that an individual can leave up to $5.4 million to heirs and not pay estate tax. Married couples then can leave up to $10.8 million. You can also make tax-free gifts during your lifetime (but you need to keep track of them) up to $14,000 per year per person with a lifetime total gift exemption of $5.4 million.

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Baby Boomers Looking at Retirement – Business Succession Plans Crucial

It has been commented that working for oneself is great because you get to work half-days. You even get to choose which half – the first 12 hours or the second. Funny as that may seem, Baby Boomer generation business owners smile knowingly, and the thought of retirement is alluring. Logistically, however, said Boomers might find themselves in a pickle when it comes to business succession, unless they focus now on some forward-thinking.

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10 Things You Should Know About Probate

1. Death of a Loved One

Following the death of a loved one, such as a parent, the first and foremost priority is “family.” Nothing should precede that. The business of the estate comes after devoting full attention to remembering your dearly departed, being with friends and family, and allowing friends and family to pay their final respects. Everything else is on hold. The liabilities of the estate will wait for now. If there is a mortgage on the house, it can go late for now. Fortunately, credit scores for the decedent, are now meaningless. Just collect and organize the mail, but focus for now on family. In fact, the business of administering the estate can remain on hold until you receive the certificate of death from the funeral service or office of vital records. Your receipt of the death certificate will prompt you to begin administering the estate.

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