1031 Exchanges can be technical and complicated. Learn more about the types of exchanges to determine which type is the best fit for your situation!
A 1031 Exchange is used by experienced real estate investors to defer paying their capital gains tax upon the sale of an investment property. It works by exchanging the first property (the relinquished property) for a new property that the investor wishes to acquire (the replacement property). By entering into a 1031 Exchange for this transaction, a taxpayer defers their tax to the liquidation of the replacement property at some time in the future.
Many taxpayers do not understand the flexibility offered through a 1031 Exchange. Not only does the 1031 allow a taxpayer to sell residential property and acquire any type of “like-kind” replacement property, which could be residential, commercial, land, etc.
The 1031 Exchange process allows taxpayers to exchange “like-kind” property. For many, the definition can be confusing when it is rather simple.
Why is the 1031 Exchange popular with real estate investors? Because it lets taxpayers defer their taxes and keep those dollars to reinvest into new property. Let’s
Under the “like-kind” requirements of Section 1031, a taxpayer not only has flexibility in the type of properties that are sold and the purchased through the 1031, but also their location.
If a taxpayer has done a 1031 Exchange in the past, they will have deferred taxes due upon the sale of this property. If the taxpayer were to perish, their heirs will inherit the property with a stepped-up basis. All of the gain in that property disappears upon the taxpayer's death.