If you have a property that qualifies for a 1031 exchange, we can help you complete the procedure. Not sure what a 1031 Exchange is? A 1031 Exchange is a transaction whereby an owner of investment property is allowed to sell the property and purchases another property without a tax consequence. A 1031 tax-deferred exchange allows an investor to reinvest the federal capital gains received from the sale and defer the payment of the tax that would normally be due on the sale. We work with you and a “qualified Intermediary” on the sale of your property as well as locating and acquiring a "like-kind" property within the 180 day time limit. The term “like kind” may be a little confusing but for this purpose it means real property i.e.: you can sell a single family home and purchase another single family home, warehouse, or vacant land, etc. As long as the property being sold is not a primary residence, and there is a tax liability to selling, a 1031 exchange should be considered.
Choosing a “Qualified Intermediary”: This is probably the most critical choice you will make in a §1031 tax deferred exchange transaction! Paramount to every exchange is the safety of funds held by the Qualified Intermediary.
Interview several and take special note of their “fund management program”.
The Qualified Intermediary cannot give tax or legal advice. However, they will work closely with your RE Broker, CPA, accountant, attorney, financial planner, lender, etc. to ensure your best interests are considered. Therefore it makes sense to contact all the parties involved ahead of time rather than risking losing the opportunity due to poor planning!
You must spend all the proceeds from the sold property on the newly purchased property to qualify for full deferment. Of course, there are some exceptions. Contact your tax professional for advice. Remember, real estate can only be exchange for other real estate. It cannot be exchanged for jewelry, stocks, bonds, etc. Also, you cannot spend the proceeds on property you already own. This is considered “goods and services” rather than “like Kind” property.
Written Identification of the specific replacement property must be within 45 Calendar days. The closing must occur by the 180th calendar day or the tax filing date-whichever is earlier.
This checklist is intended to provide a brief overview of the steps involved in an IRC §1031 tax deferred exchange. This checklist does not address all issues involved in an exchange.
Review the entire transaction with tax and/or legal advisors.
Before closing, contact QI to initiate the exchange transaction.
QI will prepare the exchange documents for the relinquished property sale.
QI is assigned into the transaction as the seller and sale closes.
Both the 45 Calendar day identification period and exchange period begin.
Exchanger properly identifies replacement property by midnight of the 45th day.
Enter into an “assignable” contract to purchase replacement property.
Execute contract with the exchanger’s name and/or assigns.
After signing the replacement property contract, contact API.
QI will prepare the exchange documents for purchase.
QI is assigned into the transaction and purchase closes.
This information is a brief illustration and is not all inclusive. Contact us so we can discuss your particular scenario. We will gladly do all we can to make investing in real estate as trouble free as possible.
All foreign investors owning U.S. rental property are responsible for paying taxes on any and all rental income they earn in the U.S. regardless of any tax treaties that may exist. You can either pay a flat tax of 30% of your gross rental income, or elect to file an annual US tax return and reduce your taxes by claiming deductions relating to ownership and management of the property. (I.e. Property Taxes, Insurance, Management Costs, etc.) With either method of taxation, you must have an Individual Taxpayer Identification Number (ITIN).
As soon as possible, you need to obtain a U.S. 'Individual Taxpayer Identification Number' (ITIN) for each owner of the property (Each person listed on the property deed). The application is done with IRS Form W7, and you must provide original certified identification documents.
Get IRS Form W7 HERE: http://www.irs.gov/pub/irs-pdf/fw7.pdf
Get IRS Form W7 Instructions HERE: http://www.irs.gov/pub/irs-pdf/iw7.pdf<
The IRS has 'Certified Acceptance Agents' who are authorized to certify your original documents and process the application. The W7 form may look easy and you may want to process it yourself, but save yourself time and visit an agent. Certified Acceptance Agents are located worldwide. Contact an agent in your country of residence. It normally takes 46 weeks for your W7 to be processed by the IRS.
Find Certified Acceptance Agents HERE: http://www.irs.gov/Individuals/Acceptance-Agent-Program Upon receiving your ITIN number from the IRS, you must provide us with a copy of the IRS letter showing your new Individual Taxpayer Identification Number (ITIN).
Note: We will not manage rental property for foreign owners who do not acquire an ITIN number.
The Internal Revenue Service (IRS) requires us, the property manager to withhold 30% of your Gross rents to ensure you will file a tax return at year end. This is obviously very costly to you and also cumbersome for us. However, there is an alternative that will exempt you from the mandatory 30% withholding.
After obtaining an Individual Taxpayer Identification Number (ITIN), submit to us Form W8ECI.
Note: Do not send the Form W8ECI to the IRS. You send it Arrico Realty & Property Management
Get IRS Form W8ECI HERE: http://www.irs.gov/pub/irs-pdf/fw8eci.pdf
Get IRS Form W8ECI Instructions HERE: http://www.irs.gov/instructions/iw8eci/index.html
By filing Form W8ECI you eliminate the mandatory 30% tax withholding as it notifies us as the property manager (and the IRS) you will be filing annual tax returns to report your income and your expenses related to the rental property.
Most generally, you will file Form 1040NR (Nonresident Tax Return) with the IRS. Those tax returns
are due by June 15th of each year and you should consult with your tax professional. Currently IRS
Form W8ECI Form remains in effect for a period starting on the date the form is signed and ending
on the last day of the third succeeding calendar year, unless a change in circumstances makes any
of the information on the form incorrect. For example, a Form W8ECI signed on September 30, 2015,
remains valid through December 31, 2018. Upon expiration of the 3year period, you must provide a
new Form W8ECI. If you do not file a form W8ECI with us, your property manager, we are REQUIRED
by law to withhold 30% of your income from the rental and forward the funds to the IRS.
Note: We will not manage properties for owners who do not file the W8ECI form with us.
At the end of each year we provide you with a year-end statement of your income and your expenses related to the management of your property. Along with the year-end statement you will receive a copy of IRS Form 1042S that reports your income to the IRS. You will then use your copy of Form 1042S to file taxes through your tax professional.
Disclaimer: We are not tax professionals. This information is a only a brief overview. Please consult your tax professional for advice concerning the Foreign Investment in Real Property Tax Act (FIRPTA).