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A 1031 Exchange is used to defer the payment of capital gains tax created when selling an investment property by allowing the seller to acquiring one or more replacement properties. This Deferred Exchanges allows the investor to keep 100% of their earned equity by putting it back to work on another investment instead of paying upwards of 30% in capital gains taxes.
As with anything involving Taxes, there is of course very specific requirements that must be followed for a transaction to qualify for a 1031 Tax Deferred Exchange. We can help sort through the confusion and provide research for the replacement property(s) that make the most sense.
What you need to know about 1031 EXCHANGE
Once you have purchased an investment property, all cash proceeds you have left over from the sale of an Investment Property will be taxed as a capital gain. How do you protect this capital?
Be specific in acquiring your next property. The tax code says it only need be “like-kind” which can be very misleading. A 1031 exchange could be for a vacant lot for a condo, an industrial building, a strip mall. How do you decide which one is right for you?
Factors you need to consider are debts and other obligations on both the property you are planning to sell and the one you are wanting to purchase. How do you avoid unwanted "Boot" in the exchange?
Timing is of the essence. You have 45 days to enter into contract and 6 months to close on the new property. Your 1031 facilitator must be kept in the loop during the transactions. How do you avoid losing your 1031 Exchange?
While a 1031 exchange is only for investment or business property, you can use it for swapping vacation homes, but this loophole is much narrower than it once used to be. How can you use your 1031 to acquire stock or a partnership in a business?
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