Matt Denny from Denny & Company, LLP began by explaining that “1031” is the section of the IRS law it refers to, going on to provide an example of a 1031 exchange.
“Let’s say you have a rental property that you’ve owned for 30 years,” he said. “Obviously 30 years ago you paid a lot less for it than it’s worth now. If you sell it, you would have to pay long-term capital gain taxes on that gain, but you can also postpone that gain by taking the money you get for that and rolling it into another property of like kind.”
A recent client of Denny & Company, LLP had a transaction from 2019 where they did a 1031 exchange on longtime commercial land they owned in the San Gabriel Valley and purchased another real estate property that also produced income.
Related Article: CPA In Santa Clarita Talks About History Of Family-Owned Practice
“They were able to take the basis of that old property, what they originally paid for it way back when, and roll that cost basis into the new property so there was no tax recognized,” Denny said.
There are “very strict rules” involved with 1031 exchanges, Denny noted, including how long you have to identify replacement property after the sale happens, how long you have to close on the new property and if it is considered taxable to take money out of the deal.
A second example Denny used to illustrate a 1031 exchange was someone who ran a business out of a commercial building they had owned for many years in the San Fernando Valley, but wanted to move that business to Santa Clarita instead.
“They can sell the building down there, which they may have been operating out of for 20 years, and take the proceeds from that, buy a new building that costs more and … have a mortgage written, but their cost basis of the original building is what goes with them to the new building,” Denny explained. “So there’s no tax due until they eventually sell that one or exchange it into another property, sort of like trading up, basically.”
The Santa Clarita CPA firm Denny & Company, LLP was established in 1984, and is a full-service firm of Certified Public Accountants in Santa Clarita, including Partners Matt Denny and Carolyn Denny. The Santa Clarita accountants work with small businesses and individuals, specializing in catering to each client’s unique needs and desires using a flexible approach. As a CPA in Santa Clarita, Matt Denny shares his knowledge and experience regularly on “Common Ground” on KHTS Radio. Those looking for the best CPA in Santa Clarita or a “CPA near me” can contact Denny & Company, LLP for more information today.
23929 Valencia Blvd. Suite 304
Valencia, CA 91355