What is a 1031 exchange?

What is a 1031 exchange?

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One of the joys of selling a rental property is to make a profit. Finally, you get to reap the benefits of all the hard work that went into keeping and managing the property. However, one cannot forget about the taxman. Depending on which state you live in, there will most likely be a tax on those sale profits. This will unfortunately take out a sizable chunk of those profits leaving a smaller amount behind for you. So, how do you handle this situation? What should you do?


IRS section 1031

The Internal Revenue Service has created a code under section 1031 to help out rental property owners. This code states that any capital gains from the sale of a rental property can be tax deferred if those capital gains are used to invest in another similar property. This allows you to take the full amount of the profit and invest it into a new property, which defers paying the capital gains tax. This allows you to get rid of a headache rental property and find a better suited one.


Similar property

The main rule to follow when making use of the 1031 exchange law is that the purchase must be for a similar property. This means it must be like a property similar to the one that was just sold. If you sold a single family rental you could get another rental home or even an apartment building. You cannot however use the 1031 exchange for investment in a property for personal use, stocks, bonds, and other similar items.


 Limited time

There are some time rules that must be followed when participating in a 1031 exchange. The new potential property or properties must be identified 45 days after the closing of the property that was sold. After that you have 180 days from the closing of the sold property to purchase or go to settlement on the new property.


If you are interested in selling your rental property quickly to take advantage of the 1031 exchange, please contact us today! Give us a call at 240-801-6055 or visit us at http://landlordsellers.appreciatedpropertysolutions.com

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