Investing in real estate can be complicated for novice and experienced investors alike. From the hassles of landlord duties to navigating regional or national economic downturns, there are many ways investors can be tripped up.
This is especially true when selling an investment property -- capital gains and other taxes can take a big bite of your proceeds if you don’t have a plan in place to shelter your gains. You can, however, divest an investment property and defer capital gains taxes if you do a 1031 exchange.
This article provides a deep dive into the 1031 exchange process. Investors have used this tool for decades to help manage tax liabilities by reinvesting proceeds from the sale of investment properties into like-kind assets. We’ll look at how the exchange process works, why you should consider using it, potential benefits and drawbacks, costs associated with 1031 exchanges, and more.