So, 1031 exchanges. I don’t do them often and you probably don’t either. However, knowing what one is and strategizing for it in the future is vital to maximizing financial gains when selling investment property.
Fortunately, 1031 gateway has provided a great resource that simplifies this process for us.
Taxes are a “guaranteed loss” and let’s be honest, no one likes paying taxes. A 1031 exchange is a legal and perfectly effective way to defer taxes from capital gains of selling an investment property.
In a traditional sale, you would be taxed on the capital gain (sale price minus purchase price). This can include state and federal taxes with the potential for a small recapture due to depreciation.
A 1031 exchange is incredibly simple. You just take 100% of the profits from selling your investment property and directly reinvesting it in another investment property.
There’s a few rules
- Properties must be like kinds. You can exchange commercial for residential rental properties but personal properties can’t be used for commercial.
- All proceeds must be invested or you pay capital gains taxes on the leftover cash.
- The ownership title must be identical.
There’s more! Read on in the infographic below