One of the great ways to build wealth is the 1031 Exchange. In a nutshell it’s part of the federal tax code that allows you to defer capital gains tax when you sell an investment property and buy “like kind” property. In real estate that means you can sell any type of investment real estate and replace it with any other type of investment real estate and defer all the capital gains tax. Of course, there are a few rules. Here are the three basics ones:
Since all your capital gains is deferred, now the money you would have paid in capital gains is still working for you in a new property, providing income and appreciating.
As it’s “deferred” you will have to pay the tax if you eventually sell the replacement property, but if the property is passed on to your kids as part of your estate it gets a stepped up basis. In other words, it ends up being tax free appreciation.
We’ve facilitated lots of these and can guide you through the process and recommend the best 1031 intermediaries to ensure a smooth transaction. Reach out to us for more information.*
*Note: This is not intended to be legal or tax advice.