Selling Colorado Investment Property – 1031 Exchange
A tax-deferred exchange under Section 1031 of the Internal Revenue Code allows you to sell investment properties and acquire “like–kind” properties while deferring federal, and possibly state, capital gains taxes.
An independent party must act as a qualified intermediary to hold your funds between the sale of your relinquished property and the purchase of your replacement property.
We know you want your funds to be secure. With your exchange funds held at Vectra Bank*, you have the security of a regulated financial institution and FDIC insurance up to $250,000. Funds are held in a Qualified Trust for your benefit, where they can only be disbursed with your written approval.1
Benefits of 1031 Exchange
- A 1031 Exchange allows you to reinvest sale proceeds that would otherwise be subject to capital gains taxes.
Leverage and Diversification
- Leverage or spread your equity to acquire more valuable property.
- Consolidate the equity among varying properties.
- Move equity from property such as raw land into higher income-producing assets, such as commercial property.
- Replace property with excessive maintenance with a managed property.
- Change property types to take maximum advantage of available depreciation.
- Include 1031 strategies in your estate plan and turn tax deferrals into tax savings:
|Sale Price||$ 3,000,000||$ 3,000,000|
|Gain||$ 1,500,000||$ 1,500,000|
|Sample Tax on Gain||$ 330,000||$ 0|
|Equity to Reinvest||$ 1,170,000||$ 1,500,000|
|Sample Loan||$ 2,730,000||$ 3,500,000|
|New Acquisition||$ 3,900,000||$ 5,000,000|
Seven Rules to Follow
1. Qualified Use
Relinquished and replacement properties must both be held for investment or productive use in a trade or business.
2. Holding Period
There is no specific time required to establish intended use for an investment. What’s important is that you treat the property as an investment and not hold it for resale or personal use.
A replacement property must be “like-kind” to the relinquished property (e.g., real estate for real estate, or aircraft for aircraft).
4. Equal Value
To defer all the tax, replacement property must be of equal or greater value to the relinquished property. All proceeds from the sale of relinquished property must also be used in the purchase of the replacement property.
5. Purchase Period
The replacement property must be identified within 45 days, and acquired within 180 days of the sale of the relinquished property.
You may identify the replacement property through three options: (1) three properties, no matter what their value; (2) any number of properties, with a combined market value that doesn’t exceed 200 percent of all relinquished property; (3) any number of properties, as long as you acquire 95 percent of the total value of the identified properties.
7. Qualified Intermediary
A qualified intermediary must hold sale proceeds between the sale of the relinquished property and the purchase of the replacement property.
Your 1031 Exchange can be done in three easy steps:
1. Sell relinquished property
We will help you complete the necessary documentation for your exchange. At closing, all proceeds are directed to a Vectra Bank Qualified Trust Account for your benefit.
2. Identify replacement property
Identify the replacement property to be purchased within 45 days following the sale of the relinquished property.
3. Purchase replacement property
Acquire the replacement property within 180 days of the sale of the relinquished property or the due date of the tax return, including extensions, for the year in which the sale occurred, unless the exchange period is otherwise extended by a federal disaster declaration. Proceeds will be paid directly out of your Vectra Bank Qualified Trust Account.1
For more information on how you or your company can benefit from this product, contact your local Vectra Bank relationship manager by completing the form below.
* Funds Held: All exchange and qualified intermediary services are offered through Exchange Services, LLC, a Utah limited liability company, an affiliate of Vectra Bank.
1. Qualified Intermediary Trust Accounts: All Qualified Intermediary Trust Accounts are held on deposit with Vectra Bank.