{"id":471,"date":"2022-05-15T20:55:00","date_gmt":"2022-05-15T20:55:00","guid":{"rendered":"https:\/\/stacygrove.com\/blog\/?p=471"},"modified":"2022-04-30T21:09:16","modified_gmt":"2022-04-30T21:09:16","slug":"%ef%bf%bctax-benefits-of-1031-exchange-for-real-estate-investments","status":"publish","type":"post","link":"https:\/\/stacygrove.com\/blog\/%ef%bf%bctax-benefits-of-1031-exchange-for-real-estate-investments\/","title":{"rendered":"\ufffcTax Benefits of 1031 Exchange for Real Estate Investments"},"content":{"rendered":"\n
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Before I even get started, please note that I\u2019m NOT a tax advisor. I\u2019m a Realtor. Should you be considering a 1031 exchange, please consult appropriate advisors and do not rely solely on the information contained herein. Now that that<\/em> disclaimer is out of the way, let\u2019s dive in, shall we?<\/p>\n\n\n\n

Section 1031 of the U.S. Internal Revenue Code allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale. There are a couple of situations. It needs to:<\/p>\n\n\n\n

  1. be within certain time limits<\/li>
  2. be a property or properties of like kind and equal or greater value.<\/li><\/ol>\n\n\n\n

    Capital gains are a tax levied on the profit from the sale of property or an investment. If you sell a house or property less than one year of purchasing it, short-term capital gains are taxed as ordinary income, which could be as high as 37%. Long-term capital gains for properties you have owned for over one year are taxed at 15% or 20%, depending on your income tax bracket<\/a>.<\/p>\n\n\n\n

    So, what do the IRS code and tax rules have to do with real estate? Many individuals find 1031 like-kind exchanges to be a great way to avoid major tax implications. In a nutshell, a 1031 exchange allows you to sell appreciated investment property and defer the gain on it<\/strong>\u2014meaning that you don’t have to pay taxes on any gain that you’ve realized on that property if you reinvest the proceeds into another investment property.<\/p>\n\n\n\n

    The tax rate on most net capital gains is no higher than 15% for most individuals<\/strong>. Some or all net capital gain may be taxed at 0% if your taxable income is less than or equal to $40,400 for single or $80,800 for married filing jointly or qualifying widow(er). See more on that here<\/a>.<\/p>\n\n\n\n

    Once the relinquished property sells, the taxpayer has 45 days to identify replacement property(s) and 135 days after that to finalize their exchange for a total of 180 days<\/strong>. This can be quite tricky in the tight real estate market we\u2019re experiencing right now, but it\u2019s not impossible.<\/p>\n\n\n\n

    What else should you know?<\/p>\n\n\n\n

    1. Normally the IRS does not allow you to conduct a 1031 exchange with your primary residence<\/strong>. That’s because the home you live in isn’t being used as an investment property or being held for business purposes. Instead, your primary residence is used to provide shelter for your family.<\/li><\/ol>\n\n\n\n
      • The average costs of doing a 1031 exchange are usually around<\/strong> $600 to $1,200<\/strong>, with most of the expenses in the form of fees paid to a qualified intermediary. This cost is for a straightforward deferred exchange, where you sell your relinquished property and acquire a replacement property.<\/li><\/ul>\n\n\n\n
        • The sale of a vacation property or a second home will qualify<\/strong> for tax-deferred exchange treatment if the following safe harbor requirements have been met: The subject property has been owned and held by the investor for at least 24 months immediately preceding the 1031 exchange (“qualifying use period”).<\/li><\/ul>\n\n\n\n
          • The delayed exchange<\/strong> is the most common form of 1031 exchanges. A delayed 1031 exchange occurs when the business or investor relinquishes the initial property before identifying and acquiring the replacement property.<\/li><\/ul>\n\n\n\n
            • It does not matter how many properties<\/strong> you are exchanging in or out of (1 property into 5, or 3 properties into 2) as long as you go across or up in value, equity, and mortgage. The only concern with exchanging into more than three properties is working within the time and identification restraints of section 1031.<\/li><\/ul>\n\n\n\n

              So, if you\u2019re looking for a way to re-invest some of your real estate portfolio, consider a 1031 exchange. But remember, consult with ALL the appropriate advisors first.<\/p>\n","protected":false},"excerpt":{"rendered":"

              Before I even get started, please note that I\u2019m NOT a tax advisor. I\u2019m a Realtor. Should you be considering a 1031 exchange, please consult appropriate advisors and do not rely solely on the information contained herein. Now that that disclaimer is out of the way, let\u2019s dive in, shall we? Section 1031 of the […]<\/p>\n","protected":false},"author":2,"featured_media":473,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-471","post","type-post","status-publish","format-standard","has-post-thumbnail","category-real-estate-business","entry"],"jetpack_featured_media_url":"https:\/\/stacygrove.com\/blog\/wp-content\/uploads\/2022\/04\/1031-exchange-1.png","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/posts\/471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/comments?post=471"}],"version-history":[{"count":1,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/posts\/471\/revisions"}],"predecessor-version":[{"id":474,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/posts\/471\/revisions\/474"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/media\/473"}],"wp:attachment":[{"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/media?parent=471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/categories?post=471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stacygrove.com\/blog\/wp-json\/wp\/v2\/tags?post=471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}