As too many people in California are mistakenly coming under the capital gains taxes, mainly in the real estate investments, the IRC Section 1031 Exchange can be adopted to avoid the payment of capital gains tax in California. The Internal Revenue Service (IRS) of the United States of America issued a deferred exchange regulation on 25th April 1991 that makes the taxpayers in California to defer the capital gains taxes following the sale of their investment property. This regulation is availed only by those taxpayers who following the IRS guidelines will be using Qualified Intermediary and the money to purchase an investment property, which is more suitable within 180 days of their sale. This regulation allows the taxpayers to reinvest the money that they would have lost in the capital gains taxes. Apart from California, this regulation is applicable to all parts of the USA.
Under the 1031 exchange, the investor actually uses property instead of money as the transaction medium while paying for the new property with the title of the relinquished property. The equity that is held in the new property by the investor should be equal or more than the equity held in the previously owned property. The prime benefit of the exchange enjoyed by the investor is that he is allowed to defer the 20% to 30% capital gains tax payments that would accompany a conventional sale.
There are a number of financial services providing agencies that offer solutions to the 1031 Exchange in California. It is necessary to have a guidance of some skilled financial professional in order to save the capital gains tax and also making proper reinvestment.
