The 1031 Exchange: Tax-Deferred Investing for Property Owners
Do you have an investment property? Do you wish you could find a way to sell it but not get stuck with the huge capital gains tax bite? I’m here to tell you that there is a way! Look no further than the 1031 exchange.
What is a 1031 Exchange?
The 1031 Exchange is a special provision of the tax code that allows an investor to defer taxes on the sale of a property by reinvesting the proceeds in a new property within a specific time frame. The 1031 Exchange is also known as a “deferred exchange,” because the taxes on the original sale are deferred until a later date. This can be a powerful tool for investors, because it allows them to keep more of their profits from the sale of a property. Also, the TCJA 2017 changed the rules allowing only real property to qualify for like-kind exchanges.
There are several rules that govern 1031 Exchanges, including:
1) The property being sold must be used for investment or business purposes.
2) The proceeds from the sale must be reinvested in a “like-kind” property.
3) The replacement property must be identified within 45 days of the sale of the original property.
4) The replacement property must be acquired within 180 days of the sale of the original property.
5) The taxpayer must have held the original property for at least one year.
6) The taxpayer must not have taken possession of the replacement property.
A 1031 Exchange is a great way to defer taxes on appreciated property. By reinvesting the proceeds into a new rental property, you can continue to grow your portfolio while keeping more of your money in your pocket. There are some important rules and timing constraints to be aware of, so consult with an experienced tax professional to ensure everything goes smoothly. Overall, the 1031 Exchange is a great way to save on taxes and keep your investment portfolio humming along.
Take the Next Step
Would you like to defer the tax on your investment property? Contact New Century Investments advisors to explore your options for a 1031 Exchange today!
Matt Ward, CFP®