Real Estate Investors must know how to create a successful 1031 Exchange strategy in order to keep their profits.
Karen Templeton with Emerson Equity, is a 1031 strategist. She specializes in Securitized Real Estate Investments (DSTs, TIC, NNN) and the 1031 Exchange to build Real Estate wealth.
What is a 1031
The Internal Revenue Service code section 1031 allows investors to sell one property and replace it. Provided the requirements are met, the seller can defer the taxes due, capital gains and recaptured depreciation, on the sale of the property. tax and due upon sale if they reinvest into a “like kind” property.
Who can benefit
The 1031 Exchange provides real estate investors one of the most powerful benefits available to real estate investors. Investors can defer the tax due upon sale if they reinvest into a “like kind” property. Regardless of the real estate property type; single family home, duplex, triplex, apartment building, self storage, retail, office, warehouse, etc.
How does it work?
The easiest way is to contact a 1031 exchange qualified intermediary prior to the sale of your property closing. The qualified intermediary will hold the sale proceeds in escrow. When the sale is completed, you have 45 days to identify a replacement property and a total of 180 from the sale to close on your new property.
In order to defer all tax from the sale, you must replace the equity from your sale and the debt you had in place on the prior property.
Like most things in life, exit strategies are rarely considered until they are upon us. Failing to understand the steps of a complicated process can leave you without enough time and cost you dearly. One of the most compelling reasons to invest in real estate is the ability to defer capital gains when you sell.
Plan your sale, and consult with your trusted real estate professionals to create a successful 1031 Exchange.
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