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.
At Amegy Bank, you have the security of a regulated financial institution. We will hold the funds in an Amegy Bank qualified trust in your name, where funds can only be disbursed with your written approval. We know you want your funds to be secure.
Seven Rules to Follow
Qualified Use. Relinquished and replacement properties must both be held for investment or productive use in a trade or business.
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.
Like-Kind. A replacement property must be “like-kind” to the relinquished property, like real estate for real estate, or aircraft for aircraft.
Equal Value. To defer all capital gains tax, replacement property must be of equal or greater value to the relinquished property. Also, all proceeds from the sale of relinquished property must be used in the purchase of the replacement property.
Purchase Period. The replacement property must be identified within 45 days and acquired within 180 days of the sale of the relinquished property.
Identification. You may identify the replacement property through three options: Three properties, no matter what their value; Any number of properties, with a combined market value that doesn’t exceed 200 percent of all relinquished property; Any number of properties, as long as you acquire 95 percent of the total value of the identified properties.
Qualified Intermediary. A qualified intermediary must hold sale proceeds between the sale of the relinquished property and the purchase of the replacement property.
Simplify the process.
Your 1031 Exchange can be done in three easy steps with the help of Amegy Bank:
Sell relinquished property. Amegy Bank will help you save time and expenses by providing templates of our standardized documentation for the qualified trust agreement. At closing, all proceeds are directed to your Amegy Bank Qualified Trust Account.
Identify replacement property. Identify the replacement property to be purchased within 45 days following the sale of the relinquished property.
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 Amegy Bank Qualified Trust Account.
Why use Amegy Bank exchange services?
There are many benefits associated with a 1031 Exchange, including:
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.
To Get Started For more information about an Amegy Bank 1031 Exchange, call 713-232-1031.
While the information reflected herein has been derived from sources believed to be accurate and reliable, we make no representation as to the accuracy or adequacy of such information.
The views and outlook presented are current as of the date of this communication and represent the views of the authors and of Amegy Bank N.A. and its affiliates. Such views and outlook are subject to change at any time based on market or other conditions.
This material presented is for informational purposes only and should not be used or construed as a recommendation in respect of any security, sector or investment strategy, and should not be construed or relied upon as advice, guidance as to the appropriateness of any investment decision.
Please consult your tax or financial advisor for additional information concerning your specific situation.
