Creating Wealth Through Residential Real Estate Investments

(And preserve your net worth by avoiding taxation on the sale of real estate)

DID YOU KNOW that the U.S. Virgin Islands is the only U.S. possession outside of the 50 United States and the District of Columbia that allows 1031 Tax Deferred Exchanges by law?

Most people who sell real estate must pay capital gains tax.  There is a way to defer this tax payment through a Section 1031 Exchange. 

Internal Revenue Code Section 1031 states:  "No gain or loss shall be recognized if property held for productive use in a trade or business or for investment purposes is exchanged solely for property of a like-kind." 

Under Section 1031 of the Internal Revenue Code, investment or business property owners may exchange real or personal property currently held for investment or productive use, for comparable "like-kind" property, and defer the capital gains tax that would ordinarily be paid until the replacement property is sold.

The types of real estate that can be exchanged are extremely broad.  Investors often mistakenly believe that they must acquire a replacement property that exactly matches the relinquished property.  For example, raw land can be exchanged for a condominium.  Like-kind properties include single family homes, duplexes, condominiums, raw land, apartment buildings, farms, ranches, motels, warehouses and commercial space. 

Are Vacation Homes Eligible?  According to code section 1031, a property that is held "primarily" for "business use" or "investment" qualifies for a 1031 exchange.  Vacation homes that are used partially or entirely as investment holdings, for business purposes or as rental properties probably qualify.

What is a qualified intermediary (QI)?  A key component to a Section 1031 is the use of a qualified intermediary.  If you or your agent have access to the funds during the exchange, it becomes a "sale" and you owe tax!  A qualified intermediary is bonded and insured to hold your funds in an interest bearing account until the exchange is completed to avoid this situation.  Under the IRS guidelines, your attorney, agent or accountant does not qualify; an independent third party (QI) is required.  A Qualified Intermediary provides comprehensive support for the transaction from consultation to close, including:

•  Preparing exchange agreements
•  Establishing an account for the proceeds
•  Forwarding 100% of the interest to the taxpayer
•  Preparing and delivering 1099 statements and monthly account statements

 For more information on qualified intermediaries and 1031 Exchanges, please check out the following informative websites: 

• www.starker.com 
• Wells Fargo 1031 exchanges
• www.apiexchange.com

 Please contact me for more information about doing a 1031 Exchange in the US Virgin Islands