Section 1031 exchange is a powerful tool for real estate investors to defer capital gains taxes on the sale of investment property. It allows investors to exchange one property for another of equal or more excellent value without paying taxes on the gain from the sale. This can be a terrific strategy to sell sale proceeds into new real estate and postpone paying taxes. A Section 1031 exchange is a tax-deferral strategy that allows investors to exchange one investment property for another of equal or more excellent value without paying taxes on the gain from the sale. This type of exchange is also known as a “like-kind exchange” or a “1031 exchange.” The primary benefit of a Section 1031 exchange is that it allows investors to defer capital gains taxes on the sale of investment property. This can be a great way to reinvest profits from a sale into a new property and defer the tax burden until later. Most brokers and investors have heard of Section 1031, but few take the time to learn all the conditions you must meet to take advantage of real estate exchange 1031 of the Internal Revenue Code. There are a few things that Real Estate Investors should know about section 1031 Exchange.
Tax-free does not equate to tax-deferred. Contrary to popular belief, a 1031 exchange does not result in tax-free gains. Instead, under Section 1031 of the Internal Revenue Code, a 1031 exchange enables you to defer paying tax on the gain from the sale of an investment property, provided you reinvest the proceeds in a comparable property.
Taxes apply to the boot. The difference, known as the boot, is taxable if the purchase price of your replacement property or properties is less than the sale price of the relinquished property. This boot, subject to capital gains tax, could be made up of cash or debt.
Both titles must utilize the same names. According to the taxpayer rule, the name or names, whether commercial or personal, recorded on the title of the property that was given up must coincide with the name or names used to purchase the replacement property.
These are just a few facts, so if you have any questions or worries regarding your particular position or how to make a Section 1031 exchange work for you, we strongly advise that you speak with a knowledgeable real estate exchange 1031intermediary as well as your tax advisor.