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.
In Oregon, the real estate tax withholding rules for nonresident individuals or C corporations selling property are as follows:
For more detailed information, you can refer to ORS 314.258 at Oregon Laws.
The Combined Rate accounts for Federal, State, and Local tax rate on capital gains income, the 3.8 percent Surtax on capital gains and the marginal effect of Pease Limitations (which results in a tax rate increase of 1.18 percent).
Release dates for tax bracket inflation adjustments vary by state and may fall after the end of the applicable tax year. Oregon allows a deduction for your total federal tax liability from your federal return after adjusting for certain federal tax credits. Standard deduction or personal exemption is structured as a tax credit. The personal exemption credit is not allowed if federal AGI exceeds $100,000 for single filers or $200,000 for MFJ.
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.
Oregon has a special clawback provision to ensure that in can recapture any deferred capital gains taxes from real estate sales. ORS 316.738 modified taxable income for Oregon residents when a deferred gain is recognized from the out-of-state disposition of property acquired through a like-kind exchange under IRC sections 1031 or 1033. Based on this updated law, If the property acquired in the exchange is located outside Oregon, and a gain or loss is recognized for federal tax purposes but not for Oregon tax purposes, the difference between the adjusted basis and the lesser of the fair market value at the time of exchange or disposition is added to federal taxable income. If the adjusted basis is larger, the difference is subtracted instead.
Form OR-24 is used to report like-kind exchanges involving Oregon property exchanged for property outside Oregon. It must be filed annually until the disposition of the like-kind property. The form is included with the appropriate Oregon tax return for individuals, corporations, partnerships, and trusts/estates. If there is no filing requirement, it can be submitted online. Additional resources and assistance are available through the Oregon Department of Revenue.
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