What is a 1031 Exchange?
A 1031 Exchange is a tax-deferment strategy that allows real estate investors to avoid capital gains taxes when they sell a property and reinvest the proceeds into a new property. This strategy is also known as a “like-kind exchange” or a “Starker exchange”.
How Does a 1031 Exchange Work?
When an investor sells a property, they are subject to capital gains taxes on the profits. Under a 1031 Exchange, the investor can defer these taxes by reinvesting the proceeds into a new property that is “”like-kind””. This new property must be of equal or greater value and must be identified within 45 days of the sale of the old property. The investor then has 180 days from the sale of the old property to complete the purchase of the new property. Once the new property is purchased, the capital gains taxes are deferred until the new property is sold.
What Are the Benefits of a 1031 Exchange?
The main benefit of a 1031 Exchange is that it allows investors to defer capital gains taxes, meaning they can keep more of their profits to reinvest into other properties. This can be a powerful tool for real estate investors, allowing them to grow their portfolio and increase their wealth. Additionally, 1031 Exchanges can also help investors diversify their portfolio by investing in different types of properties.
