1031 Exchange- What you Need to Know

question-mark-faceMany tax experts may be able to recite the Internal Revenue Code Sections, but most people are not tuned in to the complexities and opportunities available with tax laws.. Section “1031” is slowly making its way into day to day real estate conversation. Among REALTORS®, title companies, inventors and even soccer moms. So what is “1031” you ask? Broadly stated “a 1031 exchange (also called a like-kind exchange or Starker) is a swap of one business or investment asset for another.” Purchases and sales made within “1031” exchange will either have no tax or limited tax due at the time of the exchange.

In effect, you can change the form of your investment without cashing out or recognizing it as a capital gain. That will allow your investment to continue to grow at a tax deferred rate. There is no limit on how many times or how often you can do a 1031. You can roll over gains from one investment real estate property to another and so on and so forth. Although you may have a profit on each swap, you avoid paying tax until you actually sell for the cash, which could be many years later. Hopefully at that time you will only pay one tax, and at a long-term capital gain rate (currently 15%)

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