Reverse 1031 Tax Deferred Exchange

Written by admin on May 24th, 2011

If for some reason the investor is unable to sell the relinquished property within the strict 180 day deadline, the EAT will transfer title of the new property to the investor. The investor will end up owning both the replacement property and the relinquished property which was not sold. A failed reverse exchange will not result in a taxable event for the investor.

This advice assumes you have significant savings in both taxable accounts and tax-deferred accounts so that you can choose which type you wish to withdraw from. Otherwise, you can forget it. If you’ve got most everything in tax-deferred account, then you ought to leave the little you have in taxable accounts for emergency cash.

Those savvy about 1031s can start thinking creatively. For instance, one way to ensure that you see your college-attending child from time-time is to purchase a property in the college town and hold it as a rental, and do a 1031 exchange after graduation.
Getting tired of collecting rent and watching your residential investment property deteriorate from uncaring tenants? Are you afraid to sell after making such huge gains in the market? 1031 exchange will allow you to exchange a residential property for a business, or office rentals with a better paying clientele.

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The basic tax treatment of fixed income annuities can be considered relatively simple, whereas as with most other tax questions, the details can get rather complicated. Most annuities enjoy tax-deferred growth, and are only taxable upon distribution. This means that any growth inside of the account during the accumulation and distribution are not taxable until the money is taken out. Needless to say, tax deferred growth can be a significant boost to the overall value of the account.

The discussion of Tax Deferred Plans vs. Tax Advantaged Plans has been an on going battle. If you listen to the media and popular financial experts, you’ve probably sided with them in putting your money in tax deferred investments, like a 401K, Traditional IRA, or a SEP. Could they be wrong? Well, let’s take a macro view of this strategy and you may change your mind after reading this article.

This annuity is basically meant for earning additional interest on the money that would otherwise have been paid as taxes. The main importance of tax deferred annuity is that it allows to delay paying taxes on the growth in an annuity until you actually withdraw your funds.

Find a “qualified intermediary” (QI), also known as an “exchange accommodator”, who will hold and transfer the funds, assist with the contract language and various other processes required. You cannot take possession or touch the sales proceeds, or the 1031 will be disallowed and you will pay the tax.

It should be noted that there is an IRS penalty if a withdrawal is made from a tax-deferred annuity prior to the age of 59 ½, to encourage retirement saving. Currently, this penalty is 10%.

Isaac Roy – About the Author:

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