Tiffany’s Tip: Investing in Real Estate through 1031 Exchange
When you purchase real property and it is sold- you incur a financial gain. This gain or profit is taxable during the calendar year of the sale. To defer the taxes due on this gain, the IRS offers a break under IRS Code-seection 1031.
IRS Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.
- Has to be an investment property. This does not apply to a primary residence
- Max Property Identification time 45 days
- You can Not use a 1031 facilitator that you have worked with at any point within the 2 year time period of the sale.
- The due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as property identified within the 45-day limit described above.
- Items excluded from 1031 Exchanges:
Inventory or stock in trade
Stocks, bonds, or notes
Other securities or debt
Certificates of trust