The 1031 Exchange & Investment Properties
Whether you’re a seasoned real estate investor, or just someone who’s interested in owning a beach house one day - I know you're always looking for strategies to build wealth and maximize your investments. So I wanted to introduce you to a powerful tool you might not be aware of yet – the 1031 exchange.
A 1031 exchange is essentially a strategy that can help defer capital gains and increase your wealth.
It works by allowing you to swap one real estate investment property for another, thus deferring capital gains taxes. This tool gets its name from Section 1031 of the Internal Revenue Code (IRC), which permits the transfer of like-kind investments without requiring the payment of capital gains tax.
Here's how it works:
Funds from the property sold must pass through a qualified intermediary to ensure they never enter your accounts.
Then, once the initial property is sold, you must designate the replacement property in writing to the intermediary within 45 days of the sale, specifying the property that you want to acquire. The IRS says you can designate three properties as long as you eventually close on one of them. You can even designate more than three if they fall within certain valuation tests.
You must also close on the new property within 180 days of the sale of the old property.
Although those numbers might sound straightforward, this strategy has many nuances, and even seasoned investors should consult with a real estate professional and their CPA before proceeding.
However, when executed correctly, a 1031 Exchange can be an excellent tool for improving your financial standing.
I hope you found this information helpful! If you have any questions or need further guidance on how to proceed with a 1031 Exchange, please don't hesitate to reach out.
