CPA In Santa Clarita Explains 1031 Exchanges, How They Save Money In Taxes

Posted by: KHTS Community Spotlight in Financial, Santa Clarita Latest News August 26, 2020 - 9:30 am 0 602 Views

A CPA in Santa Clarita is explaining what a 1031 exchange is, and how using one correctly with the help of a professional can save money in taxes.

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Matt Denny of Denny & Company, LLP first noted that “1031” is the section of the IRS law it refers to, and went on to give an example of what a 1031 exchange looks like.

“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.”

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Denny & Company, LLP recently had a client with a 2019 transaction where a family took commercial land they had owned for many years in the San Gabriel Valley and did a 1031 exchange into another income-producing property that was also real estate.

“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 explained.

When it comes to 1031 exchanges, Denny noted there are “very strict rules” involved about how long a person has to identify replacement property from the time the sale happens, how long they have to close the deal on the new property and if taking money from the deal is taxable.

Another example Denny gave was if a person owned a commercial building in the San Fernando Valley where they’ve operated their business for many years, and they wanted to move the business to Santa Clarita.

“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.”

Ed. Note: This article is a KHTS Community Spotlight based on a recent radio interview with Denny & Company, LLP.

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.

Denny & Company, LLP

23929 Valencia Blvd. Suite 304
Valencia, CA 91355

(661) 286-8860