Some real estate purchases are handled via what is known as a 1031 Exchange, a transaction which allows you to defer the capital gains tax due on the sale of investment property. Done properly, 1031 Exchanges allow you to exchange nearly any type of real estate, from rental homes and raw law to apartments and warehouses. However, these transactions must meet strict IRS guidelines for property use, reinvestment and other factors:
- Both the old and new properties must qualify as investment or business use.
- You must buy a property of equal or higher value than the one you sold, and all of the cash proceeds from your sale must be reinvested.
- A Qualified Intermediary (QI) must prepare the legal documents for the exchange.
- Title for your new property must be exactly as it was held for the old property.
- You must list properties that you want to buy within 45 days of closing of your sale.
- You have 180 days to close on the purchase of properties from the 45-day list.
Some of the benefits of 1031 Exchanges include keeping 100% of your equity working for you, increasing cash flow, improving investment appreciation, and consolidating or diversifying investments. 1031 Exchanges are also useful for moving property from one geographic location to another in the event of relocation or retirement.
Lake James Real Estate has extensive experience with these types of transactions, and would be happy to answer your questions or provide more information. Just give us a call at 828-584-9999 or Contact Us and mention '1031 Exchange' in the Comments box on the form.
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