1031 Exchange for your next Real Estate Investment
Are you looking to fund your next real estate investment? One of the most popular methods that are used to help defer taxes by investors on real estate is a 1031 Exchange. Essentially, in 1031 Exchange you are taking the equity of one property and exchanging into one or multiple properties.
If you don’t know about 1031 Exchange, knowing how it works can help you make the right investment decision. You can schedule appointment with one of our Investment Advisors by clicking here.
Timelines
Time is one of the most important aspects to properly conducting a 1031 exchange. You get 45 days to identify replacement properties after you’ve sold a property. Next, you have to complete the acquisition of the replacement real estate asset within 180 days. One 1031 Exchange Specialist recommends to make a 1031 exchange successful you should be looking for a new property / multiple properties before your property sells since you only have 45 days to find something and 180 days to close on it, time becomes very important.
The IRS stipulates that the replacement properties must be “like kind;”. What it means for you is “You can sell any real estate asset and exchange it for any other real estate asset”. The investment you make on the new properties need to be equal or greater to take complete advantage of the tax gains.
3 Properties Rule
While each 1031 exchange is unique, the IRS does have several rules regarding how it works. You can purchase a maximum of three replacement properties without regard to fair market value or follow what is referred to as the 200% rule. If you go on to purchase more than 3 properties for your 1031 Exchange, the total aggregate value of all replacement properties cannot be more than 200% of the relinquished property value.
Provide us with some basic information and we'll prepare a comprehensive report which includes the financial benchmarks for your Replacement Property
Benefits
There are three primary benefits that come with using a 1031 exchange:
- Tax: This is one of the main reasons that investors look forward to in the 1031 exchange. It gives them the means to defer taxes paid on real estate.
- Leverage: This is one of the secondary reasons for 1031 Exchanges. If the property you had originally purchased is paid for free and clear, you could use the capital to reinvest with leverage on a larger real estate opportunity.
- Diversification: Instead of putting all your money into one real estate asset you can take the proceeds from your real estate sale and invest it into several residential real estate opportunities. By investing in different properties across different cities, you can add an extra layer of diversification to your portfolio as each market has its own local economic conditions.
Is a 1031 Exchange Right for You?
Using 1031 Exchange for Investment means you could defer taxes, provide diversification to your portfolio, and continue to build wealth with real estate. If you are planning to sell your real estate asset soon, a 1031 exchange could be the right move for you. If you’d like to learn more about how you can start a 1031 Exchange, Schedule Consultation with one of our expert