|Documentary Stamps On Deed||$7.00 per $1,000|
|Owner's Title Insurance||Approximately .65% of Sales Price|
|Current Year Tax Proration||TBD|
What Is a 1031 Exchange?
You've just sold a piece of investment real estate and, either through depreciation deductions on the property or through an appreciation in value, you now have capital gains tax to pay. Capital gains can be as high as 25%. Section 1031 of the Internal Revenue Code is one of the last great tax shelters. A 1031 Exchange allows you to defer payment of taxes due. As the name suggests, the 1031 Exchange works through the "exchange" of property. As long as you trade up in value and debt, your taxes will be completely deferred. By deferring these taxes, the wise investor is able to:
- Increase Cash Flow
- Purchase Different Property
- Diversify Property
- Consolidate Property
For instance, you might sell vacant land, which is not yet producing income, to buy a commercial building which is bringing in rent.
There are a few important rules that you must follow in order to meet the guidelines for a 1031 exchange. As a Certified Exchange Specialist, we can help you complete your exchange smoothly and within the regulations set forth by the IRS.
Just Answer Three Questions
There are three questions you should ask yourself to see if you are a good candidate for a 1031 exchange:
- Are you selling appreciating investment real estate?
- Do you intend to purchase new investment real estate of equal or greater value?
- Would you like to avoid paying capital gains on the sale of that investment real estate?
If you answered yes to the questions above, you are a good candidate for a 1031 exchange. Call our office CONTACT LYNDA and we can help you get started today!
5 Facts to Know About a 1031 Exchange
- Net Selling Price—To avoid the capital gains tax on the sale of your relinquished property, you must spend an amount equal to your net selling price.
(NSP = Selling Price less Closing Cost)
- What Properties Qualifies—All real estate is interchangeable.
House=Duplex=Land=Condo=Business Land=30 Year Lease DEED FOR DEED
- You must use a Qualified Intermediary—The law requires that you use a QI to facilitate your exchange. Your QI does 3 main things-(1)Prepare the Exchange Agreement, Hold Equity after Closing of the relinquished property, and Coordinate Exchange with all Closing Agents.
- 45 Day Rule—You have 45 days from the date of sale of the relinquished property to identify 3 replacement properties.
- 180 Day Rule—You must close on one or more of your identified replacement properties within 180 days after sale of your relinquished property.
Who should be listed as the buyer on the sales contract?
Non-resident aliens are subject to U.S. estate and gift tax rules that are different from those applied to U.S. citizens and residents.
- The U.S. real property of a non-resident alien who dies while holding title in his or her name or jointly with someone else is subject to U.S. estate tax.
- The federal estate tax provides an exemption equivalent of only $60,000 for non-resident aliens as compared to $600,000 for residents and citizens.
- Marital deduction is available only if the surviving spouse is a U.S. citizen or if the property is transferred to what is known as a qualified domestic trust.
- If the real estate was held in the individual name of a foreign investor who is a non-resident alien, a probate proceeding may be required in order to convey proper title from the estate.
- Gifts of U.S. real property by non-resident aliens are subject to U.S. gift tax.
Is the rental income taxable from the foreign investor?
- Both rental income from real property located in the United States and the gain from its sale will always be U.S. source income subject to tax in the United States regardless of the foreign investors status and regardless of whether the United States has an income treaty with the foreign investors home country.
- The method by which rental income is taxed depends on whether or not the foreign investor is considered to be "engaged in a U.S. trade or business".
- If it consists of merely passive activity such as a net lease which provides for the lessee to pay rent, as well as all the other operating expenses, the rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the "net rent" received.
- If, on the other hand, the foreign investor is engaged in a U.S. trade or business such as the development, management, or operation of a major shopping center, the rental income will be subject to withholding and will be taxed at ordinary progressive rates.
When purchasing a single family home or condominium on Sanibel or Captiva, there will be three insurance coverages that a lender will require. They are Homeowners, Flood and Windstorm.
When purchasing a condo, the condominium maintenance fee includes these three insurance premiums and covers any damage to the exterior of the buildings in which the condominium is located. However, as a condominium owner, you will be responsible for obtaining these three insurances to cover the contents of your condominium. The contents of a condominium is generally defined as all of the cabinetry, appliances, plumbing fixtures, appliances, flooring and furnishings in the unit.
The homeowners insurance will protect you in the event of a fire or other natural disaster other than a flood or wind damage due to a storm. In the instance of a hurricane, those two insurance coverages will come in to play. If the damage is caused by rising water, then your flood insurance policy will cover the home. If the damage is caused by wind, including water entering the home because of a broken window or roof damage, then the windstorm policy will cover the home.
Here are a few coverages that you should talk to your agent about:
Extended Replacement Cost Coverage: After a catastrophe, like a major hurricane, building materials tend to become scarce. The larger the affected area, the more serious the problem. In addition to scarce building materials, the construction workers who rebuild and repair the structures become more difficult to secure and their rates rise accordingly. Extended Replacement Cost Coverage will pay for the increased cost in materials and labor above and beyond the policy limit. Insurance companies may pay as much as 20% above the policy limit, depending on the insurance company. It is in your best interest, as a Florida homeowner, to talk to your agent about having this coverage endorsed onto your policy.
Hurricane Deductibles: According to the Florida Insurance Council, 70% of Florida homeowners have a 2% deductible applicable to their hurricane coverage. This could prove to be a hefty dollar amount. For example, if your hurricane policy limit is $300,000 with a 2% deductible, you will be responsible for the first $6,000 of a hurricane loss. As an informed policyholder, you can plan beforehand and set aside money in an interest bearing account to defray the cost of the deductible.
Flood Coverage: This coverage must be purchased separately through your insurance agent.