Finally, you have decided to give the 101 exchange a try. Well, that’s a bold step from an intelligent property owner. So, go for it. However, before committing your money, it’s important to get things right. In particular, understanding what you are getting yourself into is important. So, understand the meaning of the 1031 exchange and how it works. This guide is going to take you through the 1031 exchange and other important facts you should know.
Benefits of 1031 Exchange
With 1031 exchange, you have an option to defer paying those capital gains taxes and building a strong real estate wealth. For instance, you have purchased a real estate property worth $100,000. After a while, you decide to sell it for $400,000. Normally, your profit of $300,000 will be subject to capital gain taxes. Here, you may end up losing about $100,000. However, with the 1031 exchange, you are allowed to purchase another property with the whole $400,000. This means that your profit will not be subjected to capital gain taxes at the time of sale. This means that the sales proceeds will be used to fund new investment properties—which will help you generate cash flow. Of course, you will end up paying taxes from the sale of your properties. However, you can use the 1031 exchange to make more money. With the 1031 exchange, you have a tool for creating more wealth. In a nutshell, 1031 exchange helps you purchase bigger and better properties without paying capital gain taxes.
What Are The Qualifications?
According to experts, there is no direct answer to this question. It depends on your situation. This is because the 1031 exchange is usually associated with vague language. It should be a like-kind property. So, it’s important to consult experts first to see if your property qualifies for 1031 exchange.
1031 Exchanges Restrictions
As an investor, you must consider extra restrictions associated with the 1031 exchange. So, besides the like-kind, you must consider the following key things:
You must be the owner of that real estate. Thus, if you own a share or have a fund in a certain LLC, you don’t qualify for a 1031 exchange.
1031 exchange can only be performed between investment properties. This means that this process cannot be applied to personal properties.
Exchange delay can only happen if a third party is used as an intermediary between all the parties involved. Also, familiarize yourself with the time limitations when it comes to the 1031 exchange. For instance, you have a 45-day limit to find a replacement property after relinquishing your property.
Regarded as the smartest way to defer taxes and build a property portfolio, 1031 exchange can make you a smart investor. So, if you have decided to go for it, make the move. However, to succeed in the 1031 exchange, you must get the facts right. The above guide contains everything 1031 exchange options—including the benefits. These basics will help you invest in real; estate like a pro.