IMPORTANT UPDATE effective January 1st, 2023, Pennsylvania will recognize 1031 exchanges and provide a tax deferral benefit. (This will not apply to exchanges started in 2022 and clients are advised to speak with a Qualified Intermediary for all the facts so they can make their best finiancial decisions.) Up until this was codified in July of 2022, Pennsylvania was the only state with an income tax that did not recognize 1031s. It's a welcome change to the tax law because in a University town, we have many opportunities for good investments that will help you keep your real estate portfolio earning and appreciating. Here at KBB, we keep current with the regulations and can help with the sale or purchase AND by putting you in touch with reputable, experienced Qualified Intermediaries. Call us today at 814-234-4000 to schedule a meeting.
Savvy investors often take advantage of a tax strategy referred to as a '1031 Exchange'. It is referred to by this name because it comes from Section 1031 of the Internal Revenue Code and it allows for the deferral of gain on the sale and purchase of real estate held for use in a trade, business or investment. There are numerous benefits to this strategy that are both short term and long term. Following the law, identifying the properties, and meeting the deadlines are all easier responsibilities when you're guided by a professional.
- Immediate tax avoidance
- Time value of deferred gains
- More money available for buying replacement real estate
- Tax forgiven upon death (heirs receive stepped up basis)
- Relocation of an investment property or business
- Defers appreciation gain as well as depreciation recapture
- Possible conversion to personal residence or second home
There is also a strategy called a 'Reverse Exchange.' This is when a buyer identifies the property he wants to purchase and then sells an investment property that is already owned as the exchange.
These strategies are important because an investor should know what capital gain taxes might be due and understand if there is a route to reduce or postpone the tax liability. There are income thresholds that must be calculated to determine what the percentage will ultimately be for each taxpayer that has capital gains. Therefore, it is critical for real estate investors to explore this option when buying and selling properties used to generate income. To keep current and knowledgeable, KBB often has forums that feature talks by a Certified Public Accountant and Qualified Intermediaries for 1031 Exchanges. We can help guide investors to make the most advantageous decisions for preserving wealth.
If you have questions about whether a 1031 exchange is right for your real estate transaction, then please contact us.
Periodically, Kissinger Bigatel & Brower REALTORS hosts educational presentations for our agents on 1031 Tax Exchanges. We host invite industry experts who are qualified intermediaries to teach us the basics. These seminars are important so that our agents are always prepared to help you and to provide a list of Qualified Intermediaries. Are you interested in this type of sale? Do you need to identify a property for a 1031 purchase? Call us at 814-234-4000 and we can develop a strategy.