If you are someone who currently owns some kind of investment properties and you are planning on selling them to buy another new property, you must be aware of 1031 tax-deferred exchange. This is a process in the owner of an investment property is permitted to sell it and purchase another like-kind property while also deferring the capital gains tax. In this post, you will find a summary of the major points associated with 1031 exchange capital tax gains; you’ll know about the rules, concepts, and definitions that one must fully understand to get started with a 1031 exchange transaction. Let’s dive straight into all that from the next part of the post!
In a field filled with jargon and specialized terminology, it is crucial to start with the real and simple meaning of 1031 exchange.
A 1031 exchange derives its name from Section 1031 of the US IRC (Internal Revenue Code). This permits individuals to avoid paying capital gains taxes when they sell an investment property, along with permitting the proceeds from the sale (with certain restrictions) to invest in another like kind of property or properties of that may be equal or of higher value than the property sold.
Responsibilities of qualified intermediaries
Under the section 1031, any proceeds that is received from selling a property is taxable. For that very reason, the sale proceeds must be transferred to a qualified and credible intermediary, instead of the property seller. The qualified intermediary transfers the money to the seller of the property or properties. This expert intermediary can be an individual or even a company that agrees to assist the 1031 exchange by keeping the funds fully involved for the entire transaction. This is done till the sale proceeds are eligible to be transferred to the rightful seller of the property. It also needs to understood that the qualified intermediary cannot have any kind of formal relationship with the parties involved in the property exchange.
As a smart real estate investor, there can be a number of reasons as to why you might want to consider making use of 1031 exchange. Some of the most important reasons are listed down below:
- You might be looking for a property that gives better returns or you might want to diversify assets
- If you someone who sole owner of investment real estate, you might be interested in looking for a managed property instead of doing everything on your own
- You might be interested in consolidating a number of properties into a single one, for the purpose of a proper real estate planning
Consider this post and make use of the the best 1031 qualified intermediary to get help with 1031 exchange capital gains tax.