What is the Starker exchange?
A Starker Exchange, also known as a 1031 tax-deferred exchange, is an excellent way a real estate investor can defer the taxes on his capital gains. The exchange allows an investor to sell real estate then use the proceeds to buy another property and not pay the capital gains taxes due immediately.
How long do you have to hold a 1031 exchange property?
Deadlines are crucial to 1031 exchanges. Investors must identify replacement properties for their relinquished assets within 45 days, and they must close on those properties within 180 days. Failure to meet either deadline could result in a disqualified exchange.
Why is it called a Starker exchange?
It is called a Starker exchange, named after a man who successfully convinced the courts that based on the exchange of real estate, no tax was immediately due. The law establishing this like-kind exchange can be found in Section 1031 of the Internal Revenue Code.
How does a Starker exchange work?
Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one investment property for another. Most swaps are taxable as sales, although if yours meets the requirements of 1031, then you’ll either have no tax or limited tax due at the time of the exchange.
What is a Starker exchange in real estate?
Starker exchange, 1031 exchange, Starker trust, and deferred exchange have all come to mean the same thing: a tax-deferred exchange in which the taxpayer first relinquishes property and then acquires replacement property.
What property qualifies for a 1031 exchange?
As mentioned, a 1031 exchange is reserved for property held for productive use in a trade or business or for investment. This means that any real property held for investment purposes can qualify for 1031 treatment, such as an apartment building, a vacant lot, a commercial building, or even a single-family residence.
Is it worth doing a 1031 exchange?
Investors really like a 1031 exchange because they avoid paying taxes. The more taxes investors pay Uncle Sam, the less cash they have to reinvest.
How do you do a Starker exchange?
How to do a 1031 exchange
- Step 1: Identify the property you want to sell.
- Step 2: Identify the property you want to buy.
- Step 3: Choose a qualified intermediary.
- Step 4: Decide how much of the sale proceeds will go toward the new property.
- Step 5: Keep an eye on the calendar.
- Step 6: Be careful about where the money is.