An overview of the 1031 Exchange
A 1031 Exchange is a method of deferring taxes on income from the sale of real estate if you intend to reinvest the income in another real estate purchased within a specified time.
By following IRS Section 1031 rules and procedures, any gains you make on selling the original property are not subject to immediate capital gains taxation. The reason for this is that exchange involves selling your old property (called the “relinquished property”) in exchange for a new one (called the “replacement property“).
You can also defer these taxes as long as you continue to exchange every time you intend to sell the property.
You can use the 1031 exchange as the most powerful tool to achieve your investment objectives. Capital gains made from the sale of investment property are taxable under IRS Rules, ranging from 35% to 45%.
An investment property’s type, state taxes, depreciation, and the owner’s tax bracket affect how capital gains tax works under the 1031 Exchange.
After selling their property, exchangors can reinvest all the equity, enabling them to acquire replacement properties with better cash flow, less management, better locations, and other investment objectives.
We Ensure A Successful Exchange For You:
- We help you directly connect with Registered Investment Advisors.
- You get the option of Pre package DST to satisfy your 1031 exchange if you have limited time to identify your replacement property.
- Our advisors help you find the best possible offering available in the market, depending on your investment objectives.
- Our 1031 Expert Advisors provide complete administrative assistance to complete your 1031 Tax Deferral Exchange.
- Our team works closely with your attorney/CPA and closing agent to ensure the transaction runs smoothly.
Capital Gains Tax
A 1031 exchange is the best option if you sell your property for more than you purchased. This can save you a lot of money!
When you sell land, you cannot depreciate it. An IRS-approved write-off or deduction is depreciation, which is based on the value of your real estate minus the value of the land beneath it. It is the government’s way of accepting that your building’s condition deteriorates over time due to some wear and tear.
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Is It Necessary To Have A Simultaneous Exchange?
In most cases, 1031 tax-deferred exchanges are not two-party swaps, contrary to what some property owners believe. A delayed exchange occurs when the Exchanger has around 180 days between selling the relinquished property and closing the replacement property. It is necessary to identify a replacement property (or properties) around 45 calendar days of the relinquished property’s closing.
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When Is The 1031 Exchange Applicable?
It is possible to exchange like-kind property for investment property held for productive use in a trade, business, or investment. “Like-Kind Property is widely defined as real property in the United States and its territories.
For instance, you can exchange single-family rentals for duplexes, raw land for shopping centers, or apartment buildings for office buildings. No matter what combination you choose, it won’t matter.
There is no like-kind relationship between real property and personal property. It is illegal to exchange a commercial building for an airplane, a single-family rental for a licensed timeshare, or raw land for heavy construction equipment. In evaluating a property’s value, its general asset class, NAICS classification, and nature must be considered. You can exchange a school bus for a metro bus, a barge for a tugboat, and a fleet rental car for a taxi.
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