1031 Exchange: The Benefits of Reinvesting in Las Vegas

If you have recently sold or are planning to sell an investment property, you will owe federal capital gains taxes and, in some instances, state sales taxes on that sale. That is unless you take advantage of the IRS’s 1031 tax-deferred exchange.

The federal government and most states allow investors to defer capital gains taxes and depreciation recapture by investing in a “like-kind” property. By reinvesting within a specified timeframe, you can avoid these substantial government fees and put your money to work for you.

When looking for a place to reinvest your sales proceeds, Las Vegas should be at the top of your list. There are many benefits to investing in the Las Vegas real estate market—with low property taxes, no state income tax, corporate tax incentives and its phenomenal growth rate, Las Vegas presents a great investment opportunity. Click here to read the latest reports on the Las Vegas real estate market.

The tax-deferred exchange, as outlined in Section 1031 of the Internal Revenue Code, includes a number of steadfast rules that must be met in order to avoid taxing your sales proceeds.

The rules listed below provide a basic outline of the code’s parameters. Our brokers would be happy to meet with you to have an in-depth discussion of the 1031 code and how it applies to your investments in Las Vegas.

Timing and Identification of Replacement Property

As a taxpayer, you have 45 days from the date of sale of your property (a.k.a. the relinquished property) to identify a replacement property. Valid identification includes:

• Closing on the sale of the replacement property within the 45-day period, OR
• Identification and description of the replacement property before 11:59 p.m. on the 45th day

Multiple properties may be identified by the taxpayer as “replacement” for sales proceeds, as follows:

• Three Property Rule – the taxpayer/investor may identify up to 3 replacement properties without regard to their fair market value.
• 200% Rule – the taxpayer/investor may identify any number of replacement properties as long as the combined total fair market value of the properties does not exceed 200% of the value of the relinquished
  property.
• 95% Rule - the taxpayer/investor may identify any number of properties without regard to their fair market value, provided that the taxpayer/investor acquires at least 95 percent of the total value of such properties

Exchange Period

When a property is properly identified within the 45-day period, the taxpayer/investor has a limit of 180 days to close the transaction and complete the exchange of property.