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WHAT COULD BE THE BENEFITS OF USING A 1031 EXCHANGE?
To begin with, what is a 1031 Exchange? A 1031 Exchange is a tax-deferred exchange under Internal Revenue Code Section 1031, by which an owner can defer capital gain taxes by exchanging property held for investment for other property that will also be held by them for investment purposes.
Any type of real property, except for a person’s primary residence, can qualify for a tax-deferred exchange. There are rules for the exchange that require the property sold and the property acquired to be “like kind” to one another. Understand that “like kind” does NOT mean that a property being sold and the property being acquired must have the same physical characteristics. This means a single-family residence can be exchanged for a single-family residence, or farm land for farm land and so on. It just means real property for real property.
What could be some of the benefits for using this tax-deferred vehicle for the seller? Here are a few possibilities to consider when selling a property using a 1031 exchange:
- To replace non-income producing property with an income-producing property.
- To diversify property interests for estate planning purposes.
- To replace time-consuming, management-intensive properties with more easily managed properties.
- To exchange fully-depreciated property to obtain the benefit of a new depreciation schedule.
- To relocate the taxpayer’s business.
- To relocate investment property for ease of management.
While these options are just a few of the benefits of using a 1031 exchange, keep in mind it is best to find a title professional who knows how to help sellers with the process. It is advisable to hire an experienced exchange facilitator that can work with both the IRS timelines and keep your funds safe for the exchange.
Call Equity Title, LLC,863-802-9300, today for more information on this subject, or fill out the form below and we’ll get back to you!
