1031 Exchange

A 1031 Exchange allows for tax free real estate investing.

A legal tax loophole to avoid paying capital gains is the 1031 Exchange. A 1031 exchange gives us a way to move out of an asset, and an exit strategy if you will need to relinquish your property without paying the taxes which are ordinarily due when you liquidate an asset. The key is that you have to exchange it for another property of “like kind”. What do I mean by like kind? Real estate for real estate, it could be a house for a condo, condo for a warehouse, or warehouse for an apartment complex… as long as it is real estate for real estate – the key is you cannot accept any cash. Three main rules to follow:

1. But the relinquished and acquired property must be of productive use in a trade or business or for investment (owner occupied residences are in eligible).

2. Both the property exchanged in the one receipt must be of like kind (meaning real estate for real estate).

3. The exchange must occur.

The owner cannot sell one property for cash immediately use cash proceeds to purchase another property. That is to say, the owner cannot touch cash. Two deadlines to meet with a delayed exchange: The IRS allows the owner of the relinquished property up to 45 days to identify a replacement property The second deadline to close the next transaction within 180 days after the property is relinquished

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