With a better understanding of Section 1031 of the Internal Revenue Code, you can help clients hang on to their wealth and defer capital-gains taxes by reinvesting proceeds from the sale of a business or investment property. In the meantime, you may even open the door to a new niche. This quiz, developed with the help of experts at Miami-based Bayview Financial Exchange Services, will help you get started.
In order for properties to qualify for a "like-kind" exchange, they must be:
Located within the same state
The same category of real estate, such as commercial or residential
Any type of real estate, as long as it's used as an investment or for business
Any type of real estate, with the exception of raw land
To defer capital gains taxes, the replacement property you choose must:
Be of equal or greater value than the property you sold
Be worth less than the property you sold
Be worth no greater than 5 percent more than the property you sold
Be of any value; no reinvestment requirement exists to defer taxes
How many days from the closing date of your property's sale do you have to identify a replacement property?
How many days from the closing date of your property's sale do you have to actually purchase a replacement property?
Which of the following purchases would qualify for a 1031 exchange?
A $100,000 savings bond
20 percent interest in a business partnership that owns real estate
300 shares of IBM stock
50 percent undivided interest as a tenant-in-common in real estate
Which of the following purchases would not qualify as a like-kind exchange?
Farmland held as an investment
An office property used for business
A duplex used for your personal residence
A vacation home held as an investment
Which of the following is not a rule that must be followed when identifying a replacement property or properties?
The Single Property Rule
The Three Property Rule
The 95 Percent Rule
The 200 Percent Rule
What is the most common type of 1031 exchange?
Forward Delayed Exchange
In a 1031 exchange, the term "boot" usually refers to:
The exchange of one property for another simultaneously
The full market value of both properties combined
Whatever personal items that are left behind in a property after the seller moves out
Any cash proceeds not spent on the purchase of a replacement property during an exchange
To conduct a like-kind exchange, you must use a "Qualified Intermediary" to facilitate the transaction. This person can be:
Your real estate lawyer
A real estate licensee representing either party in the exchange
A certified public accountant who works with either party in the exchange
An independent third party recognized by the IRS as facilitators of 1031 exchanges