A 1031 exchange is a tax strategy that allows you to defer paying capital gains taxes when you sell an investment property, as long as you reinvest the proceeds into a new, like-kind property. This means you can sell one property and buy another similar one without immediately paying taxes on any gains from the sale.
These like-kind exchanges are covered under Section 1031 of the Internal Revenue Code (hence the name "1031 Exchanges") and apply to federal capital gains taxes. However, each state has their own tax code, and may have different rules for real estate tax withholdings, the ability to complete a tax-deferred sale, or the rules around like-kind exchanges. Below we'll dive deep into these state-level specifics.
Real estate sales are not subject to withholding taxes in Nevada. However, foreign investors will still be subject to federal withholdings such as FIRPTA, which is 15% of sale proceeds.
Nevada does not have state or local capital gains taxes. The Combined Rate accounts for the Federal capital gains rate, the 3.8 percent Surtax on capital gains, and the marginal effect of Pease Limitations on itemized deductions, which increases the tax rate by 1.18 percent.
Nevada does not have a state income tax.
Many states recognize and follow the federal rules for a qualifying 1031 exchange. We recommending reviewing these resources for 1031 exchanges at the federal level - learn about the rules for an exchange, the key deadlines you must meet, and why you are required to work with a Qualified Intermediary like Deferred.com.
When considering a 1031 exchange for a property located in Nevada, there are specific state regulations and requirements that set it apart from other states. One of the key distinctions is the regulation of exchange facilitators under Nevada law, specifically outlined in Nevada Revised Statutes (NRS) Chapter 645G.
In Nevada, exchange facilitators, also known as Qualified Intermediaries (QIs), are required to be licensed under state law. This licensing requirement ensures that the facilitators meet certain standards of professionalism and financial responsibility. The state has established specific regulations to govern the activities of these facilitators, including requirements for handling exchange funds, maintaining fidelity bonds, and carrying errors and omissions insurance.
This regulatory framework is designed to protect the parties involved in a 1031 exchange by ensuring that the facilitators are competent and financially stable. It adds an extra layer of security and trust to the exchange process, which might not be as strictly regulated in other states.
For example, while federal regulations under the Internal Revenue Code (IRC) Section 1031 provide the general rules for tax-deferral in property exchanges across the U.S., the specific requirements for facilitators in Nevada add a state-specific compliance layer that anyone engaging in a 1031 exchange in Nevada must navigate. This means that when you're planning to execute a 1031 exchange with a property located in Nevada, it's crucial to work with a licensed and compliant facilitator who understands both the federal and state-specific nuances of these transactions.
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