What is a 1031 Exchange Real Estate?
One of the biggest advantages to investing in real estate is the 1031 Exchange real estate . It is a fact a lot of rich people earned their wealth buying, owning and selling real estate. To play the game you must know the rules and the benefits of investing.
The 1031-Exchange is in reference to the IRC Section 1031 which allows property investors to sell their investment properties without paying capital gains tax; but instead use the entire sale proceeds to invest in another investment property of “like-kind”.
Examples of “like-kind” real estate properties:
- Single family rental to an apartment
- Commercial building to vacant land
- Duplex to commercial property
- Unimproved to improved property
The Internal Revenue Code — Section 1031 allows the exchange of property held for productive use or investment. The code states:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”
Therefore, the 1031-Exchange does not include your homestead or primary home. The IRS allows for no capital gains for homeowner transactions up to $250,000 for singles and up to $500,000 for married couples. Which means you do not pay taxes on your gains when you sell your primary home if you are within the approved amounts.
How exactly does the 1031 Exchange Real Estate work?
Step to take:
The first and only step is to contact me, Ray McCurty your local San Antonio Area Realtor. I can answer questions you have and connect you with my professorial friends at Asset Preservation Incorporated which is a 1031 exchange real estate company. Everyone’s situation is different, so you really must speak to me to see if your situation is one reason to exchange.
FREE INFORMATION ON THE FIVE REASONS TO 1031 EXCHANGE REAL ESTATE
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An investor has a maximum of 180 calendar days, or their tax filing date, whichever is earlier, to complete the property exchange. The investor must identify their potential replacement property or properties by midnight of the 45th day after closing on the sale of their relinquished property. The 45 days are inclusive within the 180 days exchange period.
This kind of information can save you a TON of money! If you went under contract and decided afterwards to do a 1031 exchange, it may be too late. Let’s talk before you list your home.
(Please reply to this blog post under comments if you have any thoughts to add to the discussion.)