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What is a 1031 Exchange?
Sec. 1031 of the Internal Revenue Code allows an owner of an investment property to exchange that property and defer paying federal and state capital gain taxes on the profit of that sale if they follow specific rules and regulations established by the IRC. What this does is allow you to take all proceeds from your original property sale and leverage into more valuable "like kind" property, thereby increasing cash flow, or property values without paying taxes on the gain from the original sale.
What is "Like Kind" Property?
"Like Kind" property can include, but is not limited to, any of the following, provided it is held for investment, and is not your primary residence:
Single Family Rental
Duplex or Multi Family
Apartment Building
Commercial Property
Raw Land
For example, a single-family rental can be exchanged for raw land, or an apartment building or commercial property. In addition properties can be exchanged anywhere within the United States.
Does an Exchange Need to be Simultaneous?
No, on the contrary, a literal trade of properties is very rare. Most exchanges are delayed exchanges whereby the exchanger has 180 days from the sale of his first property to close on the replacement property. However, they must identify that property(s) within 45 days of closing.
When is a 1031 Exchange Applicable?
Whenever a property owner intends to SELL any property that is not their primary residence, and plans to BUY another "like kind" property within 180 calendar days following the closing of the relinquished property. It is critical to have a qualified and competent intermediary involved.
Folks, this is a brief summary of IRC 1031 Exchange, call me if you want more information, I will be glad to discuss your options. If you have property you wish to consider selling and exchanging we can talk about your options. On the other hand, if you want to make your first purchase and get involved in future exchanges; we can discuss what is the best starter idea for you. This can be a fun and profitable way to invest in your retirement.---Joe (406) 863 3407 |
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