What is a 1031 Exchange?

Let's say you want to find a way to defer the taxes on some real estate you are about to purchase and it just so happens that you have some real estate that you want to sell. One possible option is a 1031 exchange. A 1031 Exchange is exactly what it says: an exchange. The two transactions, rather than being considered a separate purchase and sale, are instead categorized as an exchange, allowing you to defer capital gain taxes.

The Benefits of 1031 Exchanges:

• For qualifying properties, capital gain taxes can be postponed and potentially eliminated all together.
• Access to more capital. Obviously not having to pay 15% to 20% in capital gain taxes on your purchased property frees up money to invest elsewhere.

How do I qualify for a 1031 Exchange?

• The property that you are purchasing must be of greater value or of equal value to the property that you are selling.
• The equity in the property that you are purchasing must be of greater value or equal to the property that you are selling.
• The debt on the property that your are purchasing must be of greater or equal value to the debt on the property that you are selling.
• The entirety of the net proceeds from the sale of your current property must be used to purchase the new property.

As an East Lansing realtor, I am very familiar with 1031 Exchanges, due in large part to the variety of real estate investors that I work with regularly. If you would like to learn more about 1031 Exchanges or are thinking of purchasing or selling a Lansing area property and want to know if you qualify, please visit MyRealtorRob.

 Learn more about 1031 Exchanges here.

People who complain about taxes can be divided into two classes:  men and women.  ~Author Unknown