Taxpayers are often confused about such issues as: How do I make sure that the transaction is tax deferred in full? By following just two simple rules, your transaction should meet the full-deferral rollover test of Section 1031. They are:
#1--You must buy a replacement property of equal or greater value to the property sold in order to completely defer the applicable capital gains tax. If you purchase a property of lesser value, you will be taxed on the difference; and
#2--You must use all of the cash proceeds from the sale of the relinquished property towards the purchase of your replacement property in order to completely defer capital gains tax. If you do not use all of your proceeds on the purchase, you will be taxed on the difference.
For more information on these and other basic rules on Section 1031 exchanges, go to our website at: www.liberty1031.com and then proceed to the section titled "Understanding 1031's".
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