Published on our January 2023 Newsletter
Question: “What is a 1031 Exchange, also referred to as a Like-Kind Exchange? How could I benefit?“
If you have owned investment or rental property for at least 2 years, a 1031 Exchange enables you to defer some of the tax liability from the sale of that property by reinvesting those proceeds into a similar kind of property of the same or greater value.
With the sale of your property, the funds go to a Qualified Intermediary who will hold those funds until you purchase the next property. Usually you close the sale of your current property before you close the sale of the new property. Although, a “Reverse 1031 Exchange” can be done.
There is a 45 day period after the sale of your property to identify up to 3 properties for your new purchase, and a 180 day period, which runs concurrently, for you to close on your new investment property.
In addition to deferring capital gains taxes, other advantages could include:
- The potential to increase investment income by moving to more profitable real estate markets.
- Property consolidation; combining multiple investment properties into a single property.
- Diversification; dividing one investment property into several properties.
For the basic qualifications, visit our other article here.
*For more information on 1031 Exchanges, their requirements and additional stipulations, consult a licensed tax professional before making arrangements to begin a 1031 Exchange.
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