You use a 1031 Exchange.
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We actually closed 2 homes this month that utilized a 1031 Exchange, so this is really top of mind for me right now.
What is a 1031 Exchange?
A 1031 EXCHANGE allows real estate investors to swap one investment property for another and defer capital gains taxes, but only if IRS rules are met.
A seller must hire a qualified intermediary before you close on the property you want to sell.
Once the sale closes, the seller has 45 days to identify a Replacement Property(s), and 180 days total, to close on a Replacement Property(s). These timelines run concurrently and do include weekends and holidays.
The Replacement Property must be deemed “like-kind.” Simply put, the Replacement Property must also be used for investment, or a productive use in a trade or business.
In order to ensure the deferral of all gains from the sale of the property, the price of the Replacement Property must be equal to or greater than the net sales price of the original property.
What happens if you sell an investment property and buy another one and you DON’T use a 1031 Exchange?
You pay Capital Gains tax on the proceeds, which can be as high as 20-25% or more.
PARKS Real Estate
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