1031 Tax Deferred Exchanges
When you sell real estate, you have to pay tax on the gain from the sale of your property. This gain is caused either by the property appreciating over time or by taking depreciation deductions for tax purposes.
What is the purpose of a 1031 exchange?
A 1031 tax deferred exchange allows you to roll-over all of the proceeds received from the sale of an investment property into the purchase of one or more other
investment properties. At closing, proceeds are transferred to a third party - called a facilitator or qualified intermediary - who holds them until they are used acquire the new property.
With a 1031 Exchange, named for the Internal Revenue Code Section, you can defer the payment of the tax that is normally due on the sale.
The deferment is like getting an interest-free loan on the tax dollars you would have owed for a cash sale. More equity is retained, and that helps you move into properties of higher value each time you perform a 1031 exchange.
If you want 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.
How A 1031 Exchange Works:
- The old property and the new property must qualify as investment or business use. If the property qualifies, 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 wish to buy.
- You have 180 days from the date of closing to close the purchase of one of the properties submitted on your 45-day list.
- You cannot control the money. By law, the money is held by a "Qualified Intermediary" (sometimes also called an "Accommodator" or a "Facilitator").
- Whoever holds title on the previous property must also hold title on the new property.
- To avoid taxable gain, you must reinvest all your proceeds and buy a property of equal or greater value.
RE/MAX Properties of the Summit is experienced in 1031 exchanges and can assist you with your real estate investment needs. A tax professional should be consulted before buying and/or selling real estate.
Please contact us for more information on 1031 Exchanges: