What
is the purpose of a 1031 exchange?
A 1031 tax deferred exchange allows you to
roll-over all of the proceeds received from the sale of an
investment property into the purchase of one or more other like-kind
investment properties. At closing, proceeds are transferred to a
third party--called a facilitator or qualified intermediary--who
holds them until they are used acquire the new property.
Exchanges Allow You to Delay Capital Gains Taxes
Capital gains taxes are deferred if all of
the exchange funds are used to purchase like-kind investment
property. The deferment is like getting an interest-free loan on the
tax dollars you would have owed for a cash sale. More equity is
retained, and that helps you move into properties of higher value
each time you perform a 1031 exchange. Waterfront homes for sale in
Coconut Grove, Coral Gables.
What's Eligible?
A 1031 exchange is possible when you
sell real estate held for investment purposes. It cannot be used for
the sale of your personal residence.
Like Kind Properties
Exchanged properties must be like
kind. For a real estate exchange this means real-property for
real-property, but not necessarily land for land or a rental house
for another rental house. Take a look at the IRS rules for specific
information about what types of properties qualify as like kind.
You can exchange a single property for
multiple properties, or purchase one property from the proceeds of
several. Proceeds not used to purchase new investment property are
taxed as a cash sale. Luxury home for sale in Coconut Grove, Coral
Gables.
"In
a like-kind exchange, both the property you give up and the property
you receive must be held by you for investment or for productive use
in your trade or business." -IRS
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Gables, Coconut Grove
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