Published on our November 2021 Newsletter

Question: What are the benefits of a 1031 exchange, and am I qualified?

Chris’ Answer: When you sell your investment property, you will be required to pay a capital gains tax on your profits at either a short-term or long-term capital gains rate. But, if you instead reinvest profits from the sale in a like-kind property of the same or greater value, Internal Revenue Code Section 1031 provides for you to defer the tax liability.

1031 Basic Qualifications:

  • The new investment property must be of “like-kind” to the property being sold.
  • A personal residence will not qualify for the exchange, but a vacation home used predominantly as a rental property could qualify.
  • The like-kind property to be purchased must be identified within 45 days; the purchase must be completed within 180 days after the sale of the original property.
  • A Qualified Intermediary must ensure that all eligibility requirements are adhered to.
  • There are limitations on the amount of capital gain that may be tax deferred.
  • Always consult a tax advisor before making arrangements for a 1031 exchange.

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