| 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.)
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