If you are looking to avoid paying capital
gains taxes on some commercial or investment property, you can benefit from the
1031 exchange. This is good news for those holding valuable property.
What is the 1031 Exchange?
The Title 26, Section 1031 of the Internal
Revenue Code is known as the 1031 exchange. It specifies that you will not be
required to recognize any gain or loss on a property that is exchanged for
another property of the same kind. The properties must be used for a business
or investment. It is important to note that it does not have to be of equal
value or of the exact same type. In other words, it does not need to be land
for land or office for office.
The Advantage
Instead of paying taxes on the sale of your
property, you can use that money to purchase a higher-priced property. You have
to meet the time frame requirements to qualify for this benefit, but it can
allow you to continually move up in your property and grow your portfolio. It
is in essence an interest-free loan from the government to use to increase your
investment.
Another benefit of this exchange is that if
the property is not sold before the owner dies, the heirs only pay taxes on the
current value. They will not be responsible for any capital gains taxes from
past purchases.
How You Can Use the 1031 Exchange
Investors are not required to exchange
their property for a new investment at the same time even though it is allowed.
This is called a simultaneous exchange. The most common type is the delayed
exchange where your purchase occurs at a later date than the sale. However,
there is a time limit that the investor must be aware of.
You can also build on a purchased property
and use the exchange proceeds for the improvements.
If you are looking to buy or sell a
commercial property or investment, contact me. I can help you find what you are
looking for or attract buyers to the property you are selling.
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