1031 Exchange
1031 Real Estate Exchange
Generally, when you sell real estate, you have to pay tax on the gain
from the sale of your property. This gain is either caused by the
property appreciating over time or by taking depreciation deductions
for tax purposes.
A Secton 1031 Exchange, named for the Internal Revenue Code Section, offers you the major exception to imposition of this campital gains tax. With a 1031 exchange, when you sell business or investment real estate, you can defer the payment of the tax that is normally due on the sale.
If your objective is to use the proceeds from the sale of your property to buy more business or investment real estate, a 1031 Exchange can provide you with more funds for investment than can be achieved through the investment of after-tax proceeds from the sale of your current property.
A Secton 1031 Exchange, named for the Internal Revenue Code Section, offers you the major exception to imposition of this campital gains tax. With a 1031 exchange, when you sell business or investment real estate, you can defer the payment of the tax that is normally due on the sale.
If your objective is to use the proceeds from the sale of your property to buy more business or investment real estate, a 1031 Exchange can provide you with more funds for investment than can be achieved through the investment of after-tax proceeds from the sale of your current property.
Six Things You Need to Know About 1031 Exchanges
- The old property and the new property must be either bare land or rental property. If your properties pass this test, you can exchange any type of real estate for any other type of real estate.
- From the date of closing on the old property, you have 45 days to determine a list of properties you want to buy.
- Also, from the date of closing, you have 180 days to close the purchase of one or more of the properties listed on your 45-day list.
- You cannont touch the money. By law, the money is held by a Qualified Intermedieary (also referred to as an Acccommodator). You cannot leave the proceeds in escrow until the second property is acquired, nor can you have a friend, employee, broker, or even your CPA or attorney hold the money for you.
- Whoever is on the title of the old property has to remain on the title of the new property.
- To not have any taxable gain, you must reinvest all your cash proceeds and buy a property of equal or greater value.
