What Is A 1031 Exchange?
Since the start of the summer, I was approached 3 times with questions related to 1031 Exchanges. Here is a little blog post with some basic info with respect to this useful investment tool.
A 1031 Exchange is one of the most common real estate investment transactions. Simply put, a 1031 Exchange (also called a “like-kind” exchange) is the swap of one investment asset for another which defers capital gains taxes on profits.
A like-kind asset refers to selling one class of investment for a similar type of asset. For example, an investor currently holds several multi-family properties, such as duplexes, and wishes to sell them all in order to purchase a larger multi-family property, such as an apartment complex. This would qualify as a like-kind exchange.
There are specific IRS rules which must be carefully adhered to in order to qualify for the deferred capital gains tax. One such rule is that the sale must take place through a qualified intermediary. In Massachusetts, 1031 Exchanges are typically done by approved closing attorneys. When coupled with the use of a real estate agent that understand the process, a 1031 Exchange is relatively easy to accomplish.
The new asset must also be identified within 45 days of the sale of the current asset and the sale must conclude within 180 days. Finally, the asset must be held for over 1 year before it is eligible for use in a 1031 exchange.
Serious investors use the 1031 exchange to buy and sell assets as new opportunities present themselves, while shielding themselves from immediate capital gains liability.
Interest in learning more facts about 1031 Exchange or tax implications related to the sale of your home? Contact me! I am always happy to help.