If you trade in commercial real estate or investment properties, you must always be aware of the tax implications of your transactions. Otherwise, capital gains taxes could eat a significant portion of your profits.
We specialize in helping sellers of commercial real estate property or other investment property save money through the use of a special provision in the tax code – 1031 Tax Deferred Exchange. The Real Estate Group at Gillman, Bruton & Capone routinely represent clients in facilitating 1031 tax deferred exchanges by working closely with their tax advisors and qualified exchange intermediaries to deliver a successful and compliant tax deferred exchange.
Ordinarily, if you sell commercial property, you could end up owing the IRS a significant amount of capital gains taxes. However, the 1031 tax-deferred exchange is a way for investors in real estate to defer paying taxes on their capital gains by purchasing another property. Utilizing this option could limit your tax liability, allow you to diversify, and keep your investment income flowing.
Section 1031 of the U.S. Tax Code allows you to defer the capital gains tax if you sell the property through a Qualified Intermediary (QI) and buy a replacement property through the QI within certain specified deadlines. The investor does not handle the proceeds of the sale—the QI collects the proceeds and holds them until the investor is ready to close on their new property.
It is critical for an investor to work with a reputable QI. Our New Jersey lawyers work with an intermediary company that only handles 1031 tax-deferred exchanges. That means that you will be getting the tax break you desire with no surprises.
In addition to 1031 Tax Deferred Exchanges, a new vehicle under the Tax Code called Qualified Opportunity Zones (QOZ) also provides opportunities to defer capital gains taxes by investing in areas designated as being in need of redevelopment. QOZ are economically distressed areas designated by the state and certified by the U.S. Department of Treasury. There are QOZ in locations throughout New Jersey. With our experience in complex transactions in New Jersey, our lawyers have the knowledge of QOZ opportunities and other emerging areas to assist our clients in maximizing their investments.
Private investors can participate in Qualified Opportunity Funds supporting housing and infrastructure development in designated distressed communities. Similar to a 1031 Tax Deferred Exchange, capital gains taxes on money reinvested in the Qualified Opportunity Funds are deferred.
The 1031 exchanges apply only to real estate investments. They provide an excellent means of deferring capital gains taxes and offer investors the flexibility to diversify their holdings. 1031 exchanges are a valuable estate planning tool because if an investor dies, their heirs receive the property with a basis determined by the property’s fair market value when the original holder died.
An investor could put capital gains from any source into a Qualified Opportunity Fund and defer paying taxes on the gains. The original investment could come from the sale of a closely held business, real estate, or any other appreciable asset.
Real estate investors have an incentive to keep their capital circulating and not pay it to the IRS in the form of capital gains taxes. Thankfully, several legal vehicles exist to help you do that.
A New Jersey 1031 tax deferred exchange lawyer has considerable experience guiding people like you in their real estate investment strategies. Reach out to us today to schedule a consultation.