is a Section 1031
When you sell real estate you are taxed on any gain or profit realized from that sale. Gain is the difference between your Basis and the amount of money you receive when you sell a property. For example, you bought a property in Dodger’s Hole for $200,000 back in 1995 and you sold it last week for $800,000. Your Basis is $200,000, and your Gain or profit is $600,000; that amount is subject to tax. However, you did not use the property as your personal residence; the majority of the time you rented it and spent very little time there yourself. You might qualify for a Section 1031 Tax-Deferred Exchange. (Note: When selling a primary residence, exclusions are available to offset capital gains.)
Anyone who owns a second-home or plans on
purchasing a second-home on Martha’s Vineyard should
be knowledgeable about the Section 1031 Exchange laws. Implementing
a 1031 Exchange is simple if you follow very precise rules
and utilize the services of a reputable Qualified Intermediary.
If you want to know more about the Section 1031 Tax-Deferred
Exchange process, follow
this link to download some excellent literature that
will help you understand the full scope and options available
to Martha's Vineyard investors.
As of March 10, 2008, there has been a new
development in the law governing Section 1031 Exchanges;
the recent release of Revenue Procedure 2008-16.
The Revenue Procedure 2008-16 creates a safe harbor for
properties, second homes in particular, to meet the Section
1031 'Qualifying Use' requirement. Rev. Proc. 2008-16 establishes
firm guidelines regarding the length of ownership, and the
amounts of both rental use and permitted personal use for
the property to meet the Qualifying Use Safe Harbor. These
guidelines will enable many taxpayers to know with certainty
that their properties qualify for a 1031 Exchange, and that
this qualification will not be challenged by the IRS. Please
note that failure to meet the 'Safe Harbor' guidelines will
not necessarily disqualify a property from a Section 1031
Revenue Procedure 2008-16 will be especially helpful to
owners of Vacation or Second-homes on Martha’s Vineyard,
where there typically is both rental and personal use. Please
follow the link to read the entire Revenue Procedure 2008-16
document provided by the Internal Revenue Service
Tax season is always a time of angst as Martha's
Vineyard real estate investors are faced with countless
hours managing property finances. I found a web tool that
I think you should try. Simplify'em is a free property management
solution. It provides automated tracking of income and expenses,
and allows you to be ready for tax season in just one click.
It is a great way to stay organized, and it is very easy
to use. I am sure it will save you time and money. Click
Manager and see if it works for you.