If you have a business in the U.S. or are a U.S. taxpayer and the time comes to sell your fleet of trucks, excavators, or even a single dozer, the IRS can take a big chunk of what you make from the sale – up to a whopping 40%.
It seems that taxes, once again, are one of those things in life that you just can’t avoid. Or can you? There’s a little section of the Internal Revenue Code that you may be able to put to good use. It’s section 1031 – Like-Kind Exchanges.
So what exactly is a 1031 Like-Kind Exchange?
Most people are familiar with this handy tax strategy in real estate dealings. It allows sellers to defer the tax on gains by re-investing them in another similar or “like kind” property.
Fortunately, the rules around Like-Kind Exchanges also apply to other kinds of assets used for business – including trucks and heavy equipment.
By re-investing the gains made from the sale of your old equipment into replacement models or similar gear, you can keep more of your cash for your business instead of sending it to the tax man.
You can even defer taxes indefinitely by continuing to replace equipment through Like-Kind Exchanges. It’s almost like getting an interest-free loan from the government.
There are some basic guidelines you need to follow such as: the value of the replacement equipment must be equal to or greater than the value of the gear you sold; all of the net proceeds from the sale of your old equipment must be used to acquire replacement equipment; and you have to plan to buy replacement equipment within 6 months of selling your old machines.
Take full advantage of Like-Kind Exchanges
As with any tax regulations, you need to know all the ins and outs in order to take full advantage of them without contravening them. And in the case of Like-Kind Exchanges, you have to use a qualified intermediary to help you facilitate the process.
Ritchie Bros. partners with Accruit LLC who have helped many of our customers keep more of their cash for their business as they re-invest in newer models or expand their capabilities with improved, more technologically advanced machinery.
They have some impressive case studies detailing how businesses have saved millions of dollars through Like-Kind Exchanges. So before you buy or sell your next piece of equipment or renew your fleet, find out if you qualify for a Like-Kind Exchange.