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Monthly Archives: November 2017

Can You Complete a 1031 Exchange on Cryptocurrency?

Can You Complete a 1031 Exchange on Cryptocurrency?

As cryptocurrency continues to work its way into the mainstream, many investors are starting to ask whether exchanging one type of this virtual currency for another can qualify for capital gains deferral under section 1031. To date, the IRS has classified cryptocurrency as property (and has not excluded it specifically within section 1031), the intuitive answer would be yes. However, recent court decisions have begun to treat cryptocurrency as reportable income to the US government. So now it seems that the IRS is attempting to treat cryptocurrency as both property and currency. Likewise, the American Institute of CPAs is also recommending that cryptocurrency assets be reported to the IRS on […]

Can You Exchange Your Primary Residence Under Section 1031?

Can You Exchange Your Primary Residence Under Section 1031?

Section 1031 of the IRS code explicitly prohibits private residences from eligibility for a 1031 exchange. So the intuitive answer is no. But if your home has extensive equity, you may be looking for ways to avoid a hefty tax bill when you sell. Of course, you can use the 250,000/500,000 exclusion permitted by tax code on the sale of your primary residence. But that still leaves any equity above and beyond that amount (after you’ve subtracted the original purchase price and any capital improvements) exposed to capital gains taxes in the year of the sale. If you want to ensure tax deferral of all capital gains taxes, then a […]

Why Do Investors Like Delayed 1031 Exchanges So Much?

The idea of conducting a 1031 exchange is appealing to investors for a number of reasons, especially the tax-deferred nature of the transaction. Rather than paying capital gains tax immediately, an investor can trade up on investments and defer any tax liability for years. In some cases, where exchanged property is part of a decedent’s estate, capital gains can be effectively eliminated altogether. So why are delayed exchanges – where replacement property is not closed on for weeks or months after the relinquished property is sold – so popular? Two main reasons: The exchanger enjoys additional time to find and close on the purchase of suitable replacement property. This replacement […]

Can a Real Estate Professional Successfully Complete a Personal 1031 Exchange?

Can a Real Estate Professional Successfully Complete a Personal 1031 Exchange?

One of the key rules for a real estate exchange to qualify for capital gains tax deferral under section 1031 is that the property involved was held for either investment purposes or for productive use in trade or business. In many cases, this is a straightforward thing to show. However, questions may arise as to whether this strict requirement has been met when the exchanger works in real estate for a living. For example, if you are an exchanger who regularly buys and sells real estate or flips properties for profit, the IRS will scrutinize your exchange differently than if you were a casual real estate investor. That doesn’t mean […]