Section 1031 of the Internal Revenue Code allows investment property owners to sell an investment property and defer tax payments by reinvesting the proceeds into a "like-kind" investment property (or properties).
Simply put, any investment property held for use in a trade or business, or for investment real estate may qualify. Here are two popular choices:
What are the rules of a 1031 exchange?
- Your new investment property must be of equal of greater value.
- You must reinvest all of the equity from your old investment property into your new investment property.
- For tax deferral on all capital gains, you must not directly receive any funds from the sale of the investment property. You can receive funds from the sale, but will pay taxes on any funds received.
- You must identify a replacement investment property within 45 days of the close of escrow on the old investment property.
- You must close on the new investment property within 180 days of the close on the old investment property. (Land Investments can be ideal choices as they close quickly.)
- Real Estate Investors can defer capital gains and depreciation recapture taxes.
- Real Estate Investors can harvest dormant equity at predictable intervals to maximize the inherent benefits of real estate investments.
- Depending on the specifics of your particular 1031 exchange, the tax dollars you defer can be invested in land elsewhere, potentially increasing cash flow and net worth.
- If you choose to structure your 1031 Exchange as a Land Investment, you can eliminate the headaches of day-to-day property management found in other forms of Real Estate Investment.
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