If you’re a real estate investor, you’ve probably heard about the 1031 Tax-Deferred Exchange. But you may have questions about how it works. We at The Pujals Team work with a lot of real estate investors, and we find that many are unsure of the details surrounding the 1031 Tax-Deferred Exchange. So, let’s shed some light on this topic. Realize that we are not accountants nor attorneys; therefore, our goal is to give you a quick overview of what the 1031 Tax-Deferred Exchange is. For specific advice, always consult with your tax attorney or accountant.
In the simplest terms, a 1031 Tax-Deferred Exchange is a transaction that allows you to exchange one investment property for another by deferring the tax consequence of a sale. The transaction is authorized by the IRS Code 1031, hence the name.
One important point for clarification is that the exchange can only apply for investment property. That means you must sell one investment property and buy another. You cannot use the exchange to sell your primary residence and buy an investment property. Additionally, you can’t sell an investment property and purchase a primary home.
There are also some strict timelines to keep in mind. Once you sell your investment property, you have 45 days to identify another property of equal or greater value. Then, you have 180 days from the day you sold your property to acquire the new one.
Of course, as with any tax code, there are many factors to consider. That’s why we suggest you consult with the appropriate professionals to help you through the 1031 Exchange process.
If you have questions about a 1031 Tax-Deferred Exchange, we can direct you to a reliable source who can help. We have worked with several very competent 1031 tax deferred intermediaries over the years. We would be happy to provide you with their contact information.
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