Are you thinking about exchanging an investment property?
If the answer is yes, you may want to consider using a 1031 Exchange.
The term 1031 Exchange, defined under section 1031 of the IRS Code, basically establishes a strategy where an investor can trade one investment property for another (or more) like-kind properties, allowing him/her to defer paying capital gains taxes.
This tool is very important for investors in Real Estate. While it is true that you will eventually cash out and pay taxes, with this structure you can trade properties without incurring an immediate tax obligation.
There are 4 types of Exchanges:
- Simultaneous Exchange: this applies when the replacement property and relinquished property close on the same day.
- Delayed Exchange: This is the most common type since it allows the investor to sell the property before buying the replacement property, giving the exchanger a time frame of 180 days to do so.
- Reverse Exchange: as its name establishes, the exchanger buys first the replacement property and then sells the relinquished one.
- Construction and improvement Exchange: This type of Exchange allows the investor to make improvements on the replacement property by using the exchange equity.
A 1031 Exchange only applies when your exchanging properties for business or commercial purposes only, so keep this in mind in case you are thinking about using this strategy for your real estate movements.
We offer our services and experience on real estate to make this process easier and help you fulfill the requirements needed to make use of this tool. Contact us to get more information!