Curious about 1031 exchanges?
A look at 1031s and their benefits
- September 1, 2022
- 12:47 am
- Education, Taxes
What is a 1031 Exchange?
A tax-deferred exchange is a way for property owners to trade one property for another without having to pay any federal income taxes on the transaction. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. But in an exchange, the tax on the transaction is deferred until sometime in the future, usually when the newly acquired property is sold.
Many real estate investors find it convenient or necessary to utilize use Internal Revenue Code Section 1031 like-kind exchanges to shelter capital gains and avoid or defer depreciation when liquidating an investment.
As an agent with extensive education and experience, I am available for consultation about if and how this strategy can work for you. Because the 1031 exchange paperwork can be tricky and timelines can be tight, contact me as soon as you plan to sell your property to discuss your potential options and benefits.
Internal Revenue Code Section 1031 lets individuals and entities to “exchange” property that is held for productive use in a business or trade but not primarily for sale. The exchange is ordinarily accomplished by the sale of the investment or other property to another party and the purchase of replacement property from another third party within a designated time period. Proceeds of the sale of investment property must be reinvested in a qualifying replacement property within a limited period of time.
Under IRC Section 1031, capital gains from the sale of investment or income bearing property are deferred so long as the Exchanger does not receive cash or other benefits from the sale.
To satisfy the no cash or benefits requirement, the IRC Section 1031 allows a Qualified Intermediary to accept the Exchanger’s interest as the seller of the property and the Exchangor’s interest as the buyer of replacement property, thereby they become a participant in the transaction.
An exchanger’s failure to fully satisfy the 1031 like-kind exchange requirements can destroy the opportunity to shelter the proceeds of a prior sale from immediate tax liability.
Section 1031 tax deferred exchanges are becoming increasingly popular among Virginia property owners. There are many reasons to consider a 1031 Exchange, such as:
Benefits
Equity Preservation
A correctly structured exchange can give real estate owners a complete deferral of both federal and state capital gain taxes. This essentially equals an interest-free, no-term loan on taxes due until the property is sold for cash.
Often the capital gain taxes are deferred indefinitely since many property owners continue to exchange from one property to the another, increasing the value of their real estate investments continuously with each exchange.
Leverage
Many property owners exchange from a property where they have a high equity position into one with even more value. The larger property can generate increased flow and provide greater depreciation benefits, and a better overall ROI.
Diversification
Section 1031 Exchanges offer a great opportunity to diversify your assets, whether by diversifying into another area simply from one type of property to another.
Estate Planning
Sometimes several family members inherit a large property and cannot agree about what to do with it. Some may want to hold the property, while the others want to liquidate.
By exchanging from one large property into several smaller properties, clients can designate that, after death, their heirs will receive a different property, which they can choose what to do with.
Why Choose Me For 1031 Exchange Guidance?
Three simple reasons:
- Personalized Service with great communication
- Experience
- Knowledge
If you are exploring 1031 Exchange options, contact me today for a no-obligation consult.
SHARE THIS POST
Joy Muczko
As a full-time Realtor who has lived in Loudoun County for many years, I strive to provide the best possible outcome for all of my clients. After years working in the real estate industry as a service provider, salesperson specializing in New Construction, and investor, I took what I learned and brought it with me into my career as a full-time Realtor. With a focus on maximizing sales price for listings, new construction specialization, and negotiating aggressively for my clients, I work tirelessly until my clients are completely satisfied with their real estate experience. Beyond work, I enjoy spending time with my husband and children, playing tennis, gardening, and visiting all the great places that Northern Virginia has to offer. I truly love living here in Loudoun County and have a passion for helping people begin the next chapter of their lives.
MORE FROM OUR BLOG
Login with Google