What Is The 1031 Exchange (Tax Deferred)?

 What is the 1031 Exchange? Section 1031 of the US Internal Revenue Code allows investors to defer capital gains taxes levied on the exchange of property of the same kind. The key term here is "differ." The 1031 exchange is the method used to defer capital gains taxes levied on real estate transactions. 1031 exchanges (or tax-deferred exchanges) have great advantages for all types of real estate investors. Do you know about 1031 Exchange Vs. Delaware Statutory Trust? Check out how the Delaware Statutory Trust works.

What is the 1031 Exchange? Section 1031 of the US Internal Revenue Code allows investors to defer capital gains taxes levied on the exchange of property of the same kind. The key term here is "differ." The 1031 exchange is the method used to defer capital gains taxes levied on real estate transactions. 1031 exchanges (or tax-deferred exchanges) have great advantages for all types of real estate investors. Do you know about 1031 Exchange Vs. Delaware Statutory Trust? Check out how the Delaware Statutory Trust works.

 

1031 Exchange Vs. Delaware Statutory Trust

 

An excellent tax loophole

Similar or comparable property exchanges are truly one of the best tax loopholes for the average investor. What is the secret? You must continue to negotiate property values ​​to avoid taxes. For example, if he buys a property that costs $ 100,000 and its value increases to $ 250,000, he will profit $ 150,000 when he sells it. If you exchanged it for another worth $ 100,000, the $ 150,000 profit will be taxed.

Therefore, the real tax benefit begins when you exchange one investment property for another. There are specific guidelines for each contract. Some general rules should be followed:

 

·         The exchange must be for a property "of the same type." The application of this standard can be surprisingly free.

·         If the replacement property is not identified and is not available when you sell your property, you can sell yours now and acquire the replacement property within 180 days.

·         Proceeds from the sale of the surrendered property must remain with a third party until they are used to purchase the replacement property.

·         Within 45 days from the sale of the delivered property, he must designate before the intermediary, in writing, the replacement property he wishes to acquire. You then have 135 days to close the deal.

 

What exactly are the tax advantages of the1031 Exchange?

You can eliminate paying capital gains taxes and paying higher taxes on the recovery of depreciation you earned on the property. Within 1031 Exchange, by exchanging yours for a higher-value property, you'll also get additional deductions for the depreciation that can increase your after-tax income.

 

Can I avoid paying taxes forever?

Yes, you can. By following the rules of the 1031 exchange every time you sell one or more properties and buy replacement properties when you pass away, your assets will not pay capital gains taxes anymore.

 

How long can it take me to buy a new property?

You have 180 days between the closing date of the sold property and the closing date of the purchased property.

Can I buy a new property before selling mine?

Yes, you can buy a new property before you sell yours and still qualify for this is called a "reverse exchange." A qualified broker will take title to the new property you purchase and hold it until you sell yours.

 

Can I get money from the 1031 exchange tax-free?

Yes, one way is by first finalizing the 1031 exchange and then refinancing the new property. Find out all about the Delaware Statutory Trust here.

 

Can I buy more than one property tax-free?

Yes, you can purchase any number of replacement properties.

 

Can I exchange several small properties for one large one?

Yes, you can buy any number of small properties and exchange them for a large one.

 

How do I exchange for a large property (upgrade)?

You can improve 1031 Exchange by getting a better loan from the Delaware Statutory Trust for the new property or by adding money or shares from other properties or promissory notes from the sale of other properties, etc. Done right, it's all tax-free.

 

Are there other reasons for the 1031 Exchange other than tax?

Yes, there are many non-tax reasons to trade. For example, suppose you no longer want to manage the property. In that case, you can exchange it for one property that does not need management or exchange several smaller properties for one professionally managed.

Or, let's say your current property cannot be easily refinanced. You can exchange that property for a new one that can be more easily refinanced so that you can extract some money. You can also make a 1031 Exchange to improve the flow of money.