The amount of taxes that you have to pay when you sell off your Florida home can be quite high. This is why many sellers take time to apprise themselves of the different tax savings options that they can pursue to minimize their tax burden. The 1031 exchange is often one that sellers pursue.
A 1031 exchange is a process by which you can defer making capital gains tax payments on any property you sell. You have to locate another home to purchase by a set deadline to be allowed to re-invest those proceeds tax-free though.
There are two important deadlines that homeowners must keep present in their minds while pursuing the 1031 exchange process. One is a 45-day deadline and the other is a180-day deadline.
A homeowner that is looking to take advantage of the 1031 exchange tax breaks must identify a replacement property that they're going to purchase with the proceeds from the sale of their previous home by the 45th day. The homeowner must notify their qualified intermediary that they've found the property by midnight on that 45th calendar day. If they don't, then they lose eligibility to pursue that tax break option.
The 180-day deadline is the last day that the 1031 exchange can be finalized. The homeowner is required to convey titles to any properties that they've closed on by midnight of the 180th day. The date may be a bit earlier if the federal tax deadline and all appropriate extensions have tolled before 180 days have passed. In this case, the earlier of the two dates is the deadline for the homeowner to complete the 1031 exchange.
Many Hollywood residents pursue a 1031 exchange as a way of not having to pay significant taxes on the profits that they make from the sale of their Florida home. There are penalties if you don't meet established deadlines though. You may be on the hook for taxes and penalties if you don't do as you should. An attorney can help you better understand the benefits of pursuing this option and keep you on target with important deadlines.