Have you been considering selling your investment property? Sometimes, property owners decide that they no longer want to be landlords but they don’t want to pay the taxes from selling their investment property. If your accountant is advising you that you will owe a lot of money in capital gains tax, you need to consider what is in your best interest financially.

You might decide to keep renting your property after all. There’s good news for homeowners who aren’t sure what to do with their current rental after they decide to sell it. You can do a Starker 1031 Exchange to help minimize the taxes you will owe.

Before we can teach you how a Starker Exchange works, you should know how capital gains tax generally functions. Whenever you sell an investment property such as the rental home, you will typically owe taxes on anything you have gained from the sale of the property. Using the Starker Exchange method, the taxes from this sale will be deferred into the future. It is based on the idea that Section 1031 of the IRS code states that no gain or loss will be recognized on the exchange of the property held for productive use and trade, business, or investment. The idea is that you should swap this property for a replacement property.

Starker Exchanges work both in forward and reverse. In the forward method, you will sell the investment property and obtain the replacement within the 180-day time period. A reverse exchange allows you to obtain the title to your replacement before you sell your investment property. Both methods are equally acceptable, so you will have to decide which one works best for you.

In order to use the Starker Exchange, you will need to abide by certain rules. A general outline of the rules and requirements include criteria like:

• Must identify a replacement within 45 days

• A delayed exchange requires a neutral intermediary party to facilitate paperwork and the purchase of your new property

• Must close on the new property within 180 days of the closing on your own property

• Must close on the new property before April 15 of the following year or request an extension from the IRS for filing your taxes

• All of the proceeds from the sale of the old property must be used on the replacement property

Exchanging your property for a new one is a great way to minimize and for your tax obligations. This is an easy way to get a free ride from the IRS. While it may not help if you no longer want to be a landlord, you should consider the potential savings associated with this method.

You can rely on rental property management services like Pyramis Company to help you manage your rental properties. You will no longer need to be a landlord, and you can still take advantage of the deferred tax obligation available through the Starker Exchange. Be sure to give us a call today to see how we can help you better manage your rental property!