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What Is a Delayed Section 1031 Tax Exchange?
If you’ve been reading our blogs on a regular basis, you know all about the 1031 exchange. Sometimes called the “like-kind” exchange, Section 1031 of the Internal Revenue Code allows you to “exchange” a current property used for investment or business purposes (the “relinquished” property) into another property (the “replacement” property). Doing so means you can defer capital gains on the disposal of your relinquished property.
Can You Take Cash Out of a 1031 Exchange?
The 1031 exchange isn’t all or nothing, meaning that 100% of the sales proceeds must be used in the exchange. However, it may come at a price. Boot in a 1031 exchange refers to the fair market value of cash, benefit, or other non “like-kind” property received by the taxpayer in an exchange of a capital asset, which is subject to capital gains tax.
How Much Does a Reverse 1031 Exchange Cost?
Most people familiar with the 1031 Exchange process know the standard forward process that includes selling a property and then acquiring a replacement property. Of course, this isn’t the only way to do things. One option, a tax deferment strategy in part, is a Reverse 1031 Exchange that allows an investor to acquire the new property before getting rid of the old property. Of course, the biggest part of being successful here is in understanding the process.
Can a New Property Be Purchased Before the Old Property Is Sold in a 1031 Exchange?
In a 1031 Exchange, a taxpayer defers capital gains taxes on the sale of real estate by exchanging the proceeds from the sale into a “like-kind” property of equal or greater value. The transaction derives its name from Section 1031 of the Internal Revenue Code. In addition to the tax on your capital gain, you may need to pay a state capital gains tax, depreciation recapture, and NIIT (Net Income Investment Tax) when you sell investment property for a price that is greater than your basis in the property. Instead of just selling, by completing a 1031 exchange, you can potentially defer each of these obligations.
How Do I File a 1033 Election?
Each year we bear witness to yet another out-of-control wildfire that devastates an entire California community, or another destructive hurricane wracking the Eastern Seaboard or the Gulf of Mexico.
How Soon Can I Refinance a 1031 Exchange Property?
Refinancing an investment property is the process of paying off an existing loan and replacing it with a new one that has different terms. Investors may seek to refinance a loan’s terms for one or more of several reasons:
Can an Installment Sale Be Used in a 1031 Exchange?
Completing a 1031 exchange can be an excellent method of making changes in your real estate portfolio while deferring capital gains and other tax obligations. However, the effort requires advanced planning and discipline to succeed. Investors should begin considering potential replacement assets before selling the property targeted for relinquishing in most cases, particularly when competition for real estate is challenging, as it is today.
1031 Exchange Alternatives to Consider
Investing in real estate can be complicated, especially when it comes to selling your investment property. Taxes can take a big chunk out of your proceeds, but there are ways you can shelter your gains. One popular method used by investors to defer capital gains is the 1031 “like-kind” exchange; however, there are alternative methods to consider.
What Does ‘1031 Exchange Sale Condition’ Mean?
Real estate investors who have the ability to keep investment capital in an illiquid state often complete 1031 exchanges in order to defer capital gains taxes on the sale of real property assets.
What Is a Three-Party Exchange?
The 1031 exchange often comes with two big challenges: following the timeframes and finding the “goldilocks property.” An exchange typically refers to a trade between two parties, but this isn’t always feasible.
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