Taxes, liens, closing costs and other fees are always at the front of a homebuyer's mind. Without the right resources and strategy, a home sale can wipe out equity or take a deal off the table entirely because of the extra money for middlemen or the government.
Property owners and real estate agents in Florida have room to be creative with home purchases in order to minimize extra costs. One method is not a sale at all but a type of property exchange named after its place in the Internal Revenue Service (IRS) code: Section 1031.
How does Section 1031 work?
This section covers exchanges of one property for another. If a person relinquishes one property for a replacement one of higher value, that increase in value may be tax-exempt. The change in value must be higher than the value of the relinquished property minus closing costs. This also requires an exchange to be completed within six months.
What sorts of properties may be exchanged?
The tax code specifies "like-kind" properties, and also includes a mention that state law is relied upon to define what "like-kind" means. In Florida, this refers to any real property. So Section 1031 exchanges can include any real estate as long as it has a recognized taxable value.
Do I need a lawyer for a 1031 exchange?
An exchange may be executed by a qualified intermediary (QI) as defined by Florida law. However, an attorney may help with all types of real estate transactions. A lawyer can represent a buyer's or seller's interests and deal with unexpected complications or disputes.