1031 exchanges

Transforming tax liability into working cash – a new Purple Wave service helps you keep your cash at work in your business.

If you routinely sell equipment, then you know the drill. Go to the auction, get a good price, then write a big check to the IRS. When you sell a depreciated asset, your tax liability can approach or even exceed 40 percent, depending on your state and local rates.

That’s a lot of cash to fork over, especially when capital is hard to come by. The good news is that there’s a proven, well-established tax strategy that helps businesses like yours reinvest those funds back into your company – and Purple Wave is pleased to announce that we can now assist you in realizing these benefits.

1031 exchanges, also known as “like-kind exchanges” (LKEs), stem from Section 1031 of the tax code. In brief, this law says that if you structure the sale of a business or investment-use asset (such as heavy equipment, vehicles, etc.) as a 1031 exchange and then reinvest the proceeds into the purchase of replacement equipment, you can defer recognition of that tax liability indefinitely. (The replacement asset can be either new or used.)

Let’s consider an example. Say ABC Construction is selling a fully depreciated loader at auction and they want to purchase a new dozer. The loader sells for $90,000. Under normal circumstances, they’d owe the IRS roughly $36,000 on the sale. However, if they’ve structured the transaction as an LKE, they can instead apply those funds to the new dozer.

As it turns out, the government codes dictating what is “like-kind” to a loader are pretty friendly. The construction equipment category includes everything from post-hole diggers to cranes, from scrapers to backhoes, from asphalt roofing equipment to concrete mixers, and then some. For ABC, the question is simple: do they keep their cash or hand it over to the IRS?

1031 exchanges represent a powerful tax and cash flow strategy, and if at first they sound too good to be true, consider that LKEs have been an established part of the tax code since 1921, and that each year American businesses use them to transform hundreds of millions of dollars of tax liability into much-needed operating capital.

Purple Wave has partnered with a nationally recognized 1031/LKE provider to offer this important service to its customers. Your representative can explain more about 1031 exchanges. Give us a call today and we’ll discuss how we can help you keep your money at work in your business.