Real estate transactions involve much more than the transfer of property from one person to another. On top of all the key players involved in the transaction like real estate agents, attorneys and the seller and buyer, taxes also need to be taken into account. You pay taxes on any kind of monetary gain you see as a result of selling your property for more than what you originally bought it for if you're a seller, for example.
But what if you want to sell your property and turn around and buy another within a closely set time? In just such an instance, the federal government offers an option to defer paying taxes. Also sometimes called a tax deferred exchange, this is what is known as a 1031 exchange.
Within a specific time period, a 1031 exchange is considered a simple strategy to sell one piece of property and subsequently purchase another. The Internal Revenue Service, more commonly known as the IRS, sets requirements that both properties must meet in order to be qualified.
The convenience of the 1031 exchange is that the procedure to sell your property and purchase another is virtually identical to that of a typical real estate transaction. What makes the 1031 exchange unique is, as its name implies, it is treated as an exchange instead of a regular sale. What this means is that a taxpayer can consequently qualify for a deferred gain treatment under federal tax laws. To put it another way, home sales are considered taxable by the IRS while 1031 exchanges simply aren't.
A 1031 exchange is thus a wise way for the prudent homeowner to save money on required taxes during the selling of their former home and the purchase of a subsequent other. It is important to remember that this "exchange" must be completed within a specific time period to qualify under the IRS's 1031 tax code. In addition, the IRS also requires that the exchange be of a property that is a "like kind" to the property the homeowner originally owned and be purchased for productive use for it to qualify. Ultimately, a tax specialist is the way to go if you want more specifics in that regard.
But what if you want to sell your property and turn around and buy another within a closely set time? In just such an instance, the federal government offers an option to defer paying taxes. Also sometimes called a tax deferred exchange, this is what is known as a 1031 exchange.
Within a specific time period, a 1031 exchange is considered a simple strategy to sell one piece of property and subsequently purchase another. The Internal Revenue Service, more commonly known as the IRS, sets requirements that both properties must meet in order to be qualified.
The convenience of the 1031 exchange is that the procedure to sell your property and purchase another is virtually identical to that of a typical real estate transaction. What makes the 1031 exchange unique is, as its name implies, it is treated as an exchange instead of a regular sale. What this means is that a taxpayer can consequently qualify for a deferred gain treatment under federal tax laws. To put it another way, home sales are considered taxable by the IRS while 1031 exchanges simply aren't.
A 1031 exchange is thus a wise way for the prudent homeowner to save money on required taxes during the selling of their former home and the purchase of a subsequent other. It is important to remember that this "exchange" must be completed within a specific time period to qualify under the IRS's 1031 tax code. In addition, the IRS also requires that the exchange be of a property that is a "like kind" to the property the homeowner originally owned and be purchased for productive use for it to qualify. Ultimately, a tax specialist is the way to go if you want more specifics in that regard.
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