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Colorado Corporate Banking - 1031 Exchange

1031 Exchange - Selling Colorado Investment Property

If you’re planning on selling an investment property, you may face a large capital gain that could be subject to federal and state taxes. 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

Tax Deferral

  • 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.

Consolidation

  • Consolidate the equity among varying properties.

Increased Income

  • Move equity from property such as raw land into higher income-producing assets, such as commercial property.

Maintenance Relief

  • Replace property with excessive maintenance with a managed property.

Increased Depreciation

  • Change property types to take maximum advantage of available depreciation.

Estate Management

  • Include 1031 strategies in your estate plan and turn tax deferrals into tax savings:

Sampel Savings


Sale Exchange
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.

3. Like-Kind

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.

6. Id entification

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.

Simplified process

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. Id entify 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


Exchange Timeline

For more information on how you or your company can benefit from this product, contact your local Vectra Bank relationship manager.

*All exchange and qualified intermediary services are offered through Exchange Services, LLC, a Utah limited liability company, an affiliate of Vectra Bank.

1All Qualified Intermediary Trust Accounts are held on deposit with Vectra Bank.