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Last week a couple scheduled an appointment with me to discuss tax savings strategies. Mike and Molly explained that they sold a property last year in December and were trying to find replacement properties in order to do a 1031 exchange. By exchanging one property for another, they would have been able to defer taxes.
There was only one HUGE problem. Mike and Molly received the money personally. The $300k gain was sitting in their personal checking account. In order to do a 1031 exchange, Mike and Molly should have hired a 1031 Exchange Intermediary to receive the funds. Since Mike and Molly personally received the proceeds, they are not allowed to do the 1031 exchange.
Mike and Molly live in California, make really good money with their day jobs, and are going to be hammered on taxes. 20% Capital Gains, 3.8% Net Investment Income Tax, 8.84% California State Income Tax, and 7 years of depreciation recapture. Ouch!
What’s the right way? If you are selling a property and want to take advantage of the tax-deferred exchange, you need to immediately hire a 1031 Exchange Intermediary. The intermediary will establish a trust account on behalf of you, or your LLC. Upon the sale of the property, the gain never touches your personal bank account, and you have NO TAX LIABILITY.
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If you’re considering selling a property, be sure to contact your CPA and do some basic calculations. If the tax-deferred exchange makes sense, immediately find a 1031 Exchange Intermediary. As with anything, some companies are better than others. Be sure to get a couple of quotes.
With NCH, the state’s top business formation service, you can register your LLC in Nevada quickly and easily. Our specialists will help you choose the right entity for your company and understand why an LLC in Nevada is your best option. We’ll assist you with all necessary Nevada LLC forms, including the vital Articles of Organization, and help you comply with state regulations. In addition, we offer expert assistance with tax compliance, credit building, and payroll management. Schedule a private consultation to explore effective solutions to minimize tax liabilities and protect your wealth. Start unleashing your LLC’s full potential today with NCH. Schedule a consultation with Adam Kintigh today!
DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.