| Generally,
when you sell real estate, you have to pay tax on the gain from the sale
of your property. This gain is caused either by the property
appreciation over time or by taking depreciation deductions for tax
purposes. Section 1031 of the Internal Revenue Code allows you to
defer paying that tax.
A 1031 Exchange is not a tax
loophole. It is a code section written by Congress specifically to
allow anyone who meets its requirements to sell their property and defer
paying tax on the gain. For example: The Investor
(exchangor) must have a like kind investment property to do the
exchange. i.e., Investment rental property for another investment rental
property or Investment vacant lot for investment rental property, etc...
The exchangor should purchase a property
for a higher basis than the selling property to get the best
results. The exchangor as purchaser can leverage their investment
by financing and receiving cash at settlement and gaining additional tax
incentives.
The exchangor also needs to select an
attorney experienced with completing the exchange documents that are
needed. The cost to do so ranges from approximately $700 to
$1,000.
(Please note: The information on this
page is not intended as advise on legal or tax matters. Talk
to your financial advisor to see if a 1031 exchange is right for you.) |
