At Carroll Law Office, S.C., in Cedarburg, Wisconsin, we help real estate investors who wish to trade one investment property or property used in a trade or business for another "like kind" property without having to currently pay capital gains tax on the transaction. This type of transaction is known by a number of names, including "Section 1031 exchange," "tax-deferred exchange," "like-kind exchange" and "Starker exchange." It would be inaccurate however to refer these transactions as "tax-free exchanges."
Why Do an Exchange?
In an ordinary sale transaction, an investor must typically use a portion of the cash from the sale (or needs to liquidate other investments) to pay income tax on the gain. This may mean that there is less money to invest in another less valuable investment property. If done correctly however, the tax on an exchange transaction may be deferred, which allows the entire sale proceeds to be re-invested in a new property.
If you are buying or selling investment real estate in Wisconsin, consult with attorney Bob Carroll to see if an exchange is right for you. He will help you safely navigate the tax law, guide you through the procedural labyrinth, and assist you to use all of your sale proceeds in a like-kind investment property.
Don't Try This at Home - There Are Too Many Traps
Tax-deferred exchanges are highly technical, with complex rules that must be followed to the letter. It is paper intensive and needs to be done precisely, in the correct order and within strict time limits. If you don't specifically follow the rules for like-kind exchanges, you may be held liable for unpaid taxes, penalties and interest on your failed exchange. There is no room for error, and exchanges are not for the novice who may find a boiler-plate form off the internet. Just a few of the issues that need to be competently dealt with in any exchange are:
- Whether either the relinquished property or replacement property 'qualifies' for an exchange
- Whether the 'Purpose' requirement has been met
- Whether the property received is 'like kind' with the property relinquished
- Whether the holding period rules have been met
- Whether the 45-day identification rule and 180-day closing rules have been complied with
- If more than one replacement property is identified, has the taxpayer complied with the 'three-party rule' or the '200% rule'
- Has the transaction complied with the 'related party' rules
- Has 'boot' been received
- Has there been 'constructive receipt'
At Carroll Law Office, we have extensive experience addressing all of these issues - and more.
There Are Many Kinds of Exchanges
Exchanges come in all forms with any number of variations. There are forward exchanges (the most common) and reverse exchanges. There are simultaneous and deferred exchanges. Exchanges also can involve constructing improvements on a property to be received, using the investor's funds before he acquires title. Carroll Law Office has been called on to handle all types of like-kind exchanges. We handle complicated tax-deferred exchange cases that other attorneys will turn down. We are knowledgeable and experienced in this specialized area of the law.
Beware of Schemes and Short-Cuts
Beware of schemes. You should be wary of individuals promoting improper use of like-kind exchanges. Typically they are not lawyers or tax professionals. Sales pitches may encourage you to exchange non-qualifying vacation or second homes. (Vacation homes or second homes may qualify for an exchange, but once again there are a number of restrictive rules that must be met first). Many promoters of like-kind exchanges refer to them as "tax-free" exchanges not "tax-deferred" exchanges. They may also advise you to claim an exchange despite the fact that you have taken possession of cash proceeds (even if for only an instant) from the sale.
Contact Our Law Firm to Learn More
When you need a 1031 like-kind exchange attorney in Wisconsin, call 262-375-9800 or contact us online to schedule an appointment to see Bob Carroll. We will meet with you at our Cedarburg office (located in the heart of the downtown district) or another location by appointment. We have a flexible schedule and will meet with you on evenings and weekends if necessary.
