Like-kind property is a unique form of real estate transaction for investors looking to defer capital gains taxes. The Internal Revenue Code Section 1031 allows investment property to be exchanged for other investment property without incurring taxes on the transaction. Here is all the information you may need to know about the 1031 like-kind real estate exchange.
What is 1031 like-kind real estate exchange?
A 1031 exchange, also called a like-kind exchange, is a powerful tool that can help you save taxes on the sale of investment real estate. The like-kind rule, which the IRS sets, allows you to defer paying taxes on the gains from your sale if you reinvest the money into another piece of investment property.
For those of you who don't know, the 1031 exchange is a tax code that the IRS implemented to allow people who are selling one property and looking to purchase another to defer the taxes on any gains they make.
This code is so popular because it allows investors to sell their current investment property without having to pay taxes on the profit they make. This can drastically increase an investor's bottom line, especially if they purchase a more expensive property.
Why is 1031 like-kind real estate exchange essential?
The 1031 exchange is a section of the Internal Revenue Code that allows investors to defer capital gains tax when selling one property and using the proceeds to purchase another. Similar or "like-kind" assets can be exchanged, including real estate, stocks, precious metals, coins, and business assets.
The whole point of exchanging property is to avoid paying taxes on the gain you sell at a profit. That's why it's essential to work with a 1031 exchange company that can help you set up your deferred exchange and make the process as simple as possible.
Anytime you sell a property that gives you a profit, you're going to have to pay taxes on that profit. Most people are aware of this but don't realize how much they can avoid paying taxes using the 1031 exchange.
If you're selling an income property for a significant profit, you'll have to pay your tax burden at the capital gains rate, which is currently 15%. That's a lot of money that could be used to buy another income property or invested in venture capital.
Closing thoughts
A 1031 & its like-kind real estate exchange is becoming more popular, many investors are learning about the advantages of this type of real estate. If you have been looking to sell a property and trade it in for another one without having to pay taxes on your gain, then you should know that like-kind properties can be an excellent way to realize savings. For more information, visit our website today!