1031 Exchanges In Plain English
1031 Exchange: Basics
When a real estate investment is sold it is generally a taxable event. The proceeds of that event must be reported for federal income in the year the sale occurs. However, there a some cases where this general guildline is not applicable. The purpose of this article will be to explain one of these exceptions: the 1031 exchange.
1031 Exchange Outline
Per ferderal tax law, when real estate investments are exchanged under a very particular set of circumstances, taxes may be deferred. This deferral of taxes is permitted when the proceeds from the sale of real estate investments is used to purchase a property that is a like kind property as understood by federal tax law. In short, you put up for sale an investment property, give the funds from that sale to a qualified intermediary, then reinvest the funds into another real estate investment. Should this be performed the right way, with the right professional assistance, taxes are deferred as long as the capital remains invested.
So, when you consider selling your property you have several options
1. Sell the property and pay the capital gains taxes.
2. Sell your investment property, pay the capital gains tax, and then invest the the left over funds for you next real estate purchase.
3. Last, you can sell the real estate investment, work with a qualified intermediary, purchase a like kind property, and pay no capital gains.
Obviously, most of us will choose the third option if we understood what was involved. It is highly recommended that you discuss your specific situation and needs with a experienced professional. While it is fairly simple but you do need to follow the guildlines carefuly or you may be subject to capital gains taxes. Follow the guildlines and you will be able to keep on realizing the benefits of your real estate investment without paying the capital gains should you move your investment. Of course this is quite beneficial for those who have had real estate investments appreciate considerable and would like to invest in other kinds of property.
Before you do 1031 exchanges you need to grasp the following:
1. Like Kind Property
2. The Qualified Intermediary
3. Tenancies in Common
We have looked over the specifics and more. Of course you will need to consult a professional in order to ensure you really are able to meet the terms of Section 1031 of the federal tax code.
Tags: tenancy in common, real estate, like kind propertyRelated posts:
- 1031 Exchange Specifications
- What Are 1031 Exchange Properties?
- What to Know About 1031 Exchange Properties
- What Are The 1031 Exchange Companies
- What Are The Ins and Outs on Realty
Filed under: Real Estate Articles
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I’ve been interested in taxations for lengthier then I care to admit, both on the personal side (all my employed life-time!!) and from a legal standpoint since passing the bar and following tax law. I’ve furnished a lot of advice and rectified a lot of wrongs, and I must say that what you’ve put up makes utter sense. Please persist in the good work – the more people know the better they’ll be outfitted to deal with the tax man, and that’s what it’s all about.