1031 Tax Exchange and Real Estate



Ever since I started working in Real Estate the subject of 1031 Exchange has come up quite often.

Especially since we live in a resort town where a lot of property owners use their property as an investment.

As a Realtor, I have assisted clients with Exchanges over the years. I don't know if you have heard of this type of exchange or not, but my gut tells me if you're reading this blog, then you might want to learn more. For the sake of this blog, I am not diving deeply but focusing high-level.  

What is a 1031 Exchange?

In simple terms: a 1031 Exchange allows an Investor to sell an investment property and roll the proceeds into the purchase of a new investment property to defer all capital gains taxes. By utilizing the money that an investor would otherwise pay to the IRS in taxes, the investor can now add it to a down payment and acquire a more valuable investment property.

What Does a 1031 Exchange Protect?

A 1031 Exchange strategy allows an investor to 'defer' paying any capital gains taxes on an investment property when it sells, but only if purchasing a new like-kind property with the profit gained from the sale of the first property.

A new property has to be of the same value or more in order to avoid paying capitol gains.

Is a 1031 Exchange Right for You?

You might ask yourself what type of property fits a 1031 Exchange. In terms of real estate, you can exchange almost any type of property as long as it is NOT your personal residence. Here are some of the guidelines for what is allowed within the United States. The property purchased must:

  1. Be a Like-Kind Property

  2. Be an Investment or Business Property Only

  3. Be of Greater or Equal Value than the Sold Property

  4. Be Exchanged for a lesser value property (but that won’t be 100% tax-free)

  5. Be Purchased using the same name on the property sold as purchased

  6. Be identified in 45 days (known as the 45-Day Identification Window)

  7. Be purchased in the 180-Day Purchase Window.

At the beginning of my blog, I mentioned I wasn't going to drill down much on the subject, and that I'd offer a bird's eye view of a 1031 Exchange. I think I did a pretty good job of it!

If it's something that you are considering please contact your accountant first for more details. I'd also be happy to refer you to someone who can answer your questions.

But at the end of the day if this could work for you it is definitely worth considering. It doesn't mean it's the right option for your situation but we wanted you to know what is out there.


Because we care...

#teambousehouse

#remax



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