Defer Capital Gains Tax With
A 1031 Real Estate Exchange
When you adhere to the relevant IRS guidelines, you can defer capital gains tax with a “1031 Real Estate Exchange”. A qualified exchange permits a property owner to leverage all of the equity of a current property “exchanged” into a replacement property. In the realm of real estate, an exchange means that the sale of one piece of investment property will be replaced with the purchase of another “like” piece of investment.
The Basic 1031 Exchange Guidelines
The tax code reads as follows:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment purposes if such property is exchanged solely for property of a like-kind which is to be held for either productive use in trade or business or for investment purposes”.
1. You must acquire like-kind replacement property.
2. The new purchase must be of equal or greater value.
3. All of the net equity (proceeds) must be applied to the new investment.
4. The property to be received must be identified within 45 days after the date you transfer the current property given up in the exchange.
5. You must identify the replacement property with a signed document delivered to the other property owner involved in the exchange.
6. The new property must be received by the earlier of:
• The 180th day after the date on which the transferred
property is given up in exchange.
• Or the due date, including extensions for your tax return for the
tax year in which the transfer of the property given-up occurs.
The property you give up must be like-kind to the property received and must be held by you for investment or for productive use in your trade or business. Rental homes qualify. Personal homes you occupy does not qualify.
Tax laws continuously change and laws governing 1031 Exchanges are included. Always pre-discuss 1031 Exchange potential with your tax consultant. If you’re interested in the tax-deferred advantages and are looking for a qualified exchange property, consult with a real estate agent in your area.
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