Can you use a 1031 Exchange In Palm Beach, Florida? The short answer is, yes! Are you a real estate investor and want to use a 1031 exchange in Palm Beach, Florida? You can execute a 1031 exchange if the replacement property is worth less than the down leg, but keep in mind you will have to pay capital gains on the difference. The capital gains tax rate will depend on your income bracket.
How Does A 1031 Exchange In Florida Work?
Once you have sold a property and it closes then you have 45 days to find a potential replacement property. You have 180 days total from the sale of your initial property to complete a purchase of a new property or properties.
Delayed 1031 Exchange
The most commonly used 1031 exchange is the delayed exchange. This is exactly what was described above. You sell your property first and then purchase another property at a later date within the allotted timeline.
Reverse 1031 Exchange
A reverse 1031 exchange is the opposite of a delayed exchange. This is when you purchase your replacement property first and then sell your relinquished property. This is more difficult and requires you to use cash only for the purchase. Oftentimes banks will not provide loans for a reverse 1031 exchange.
Simultaneous 1031 Exchange
A simultaneous 1031 exchange means that the relinquished property and replacement property close on the same day. Not only do they have to close on the same day, but it must also be at the same time or the exchange can be disqualified and you can be taxed on the full amount of the sale of your property.
Construction or Improvement 1031 Exchange
This type of exchange will allow you to make improvements on your replacement property using the proceeds of the sale of your original property. This must be done within 180 days and there are additional requirements.
Every state has different requirements for 1031 exchanges. Florida has specific property types that may qualify for a 1031 exchange.
These property types are:
- Vacant land
- Shopping malls and strip malls
- Golf courses and practice ranges
- Trailer or manufactured home parks
- Self-storage facilities
- Oil, gas, or mineral interests
- Water and ditch rights
- Parking lots
- Medical and dental practices
- Convenience stores
- Vacation homes or condos
- Gas stations
- Hotels and motels
- Rental Properties
- Conservation easements
- Communication towers
- Nursing homes
If you are working with rental property and hope to qualify for a 1031 exchange then you need to make sure it is rented out 14 nights a year for at least two years so that the IRS doesn't challenge your qualification. Along with this, you cannot use the property personally for more than 14 nights a year.
If you need a real estate expert who can walk you through all of your real estate needs, contact us. We are here to help with buying or selling your primary residence, rental properties, exchanges, and or relocating your family.