A 1031 Exchange is a section of the Internal Revenue Service code that allows a buyer to defer any capital gains taxes that they would usually incur when closing on a property. It’s an opportunity for property investors to postpone a hefty tax when selling one of their investment properties, and many investors don’t know about it! It is meant to be a tax break for investors who are looking to sell a current investment property and buy another in its place, as if they’re exchanging the properties. Below you’ll find a few of the most important requisites you must meet in order to apply for a 1031 exchange. If you’re unsure if you may quality, Jacob Realty can help you!
The purpose of a 1031 exchange is to encourage investments, so homeowners simply looking to sell their current house to move into another won’t qualify. If you can prove that the property being sold as well as the new property being bought are both for investment purposes, you may qualify.
In order to qualify for a 1031 exchange, you have a six month window to sell the old property and close on the new one. The exchange officials begins once you designate the property being sold in the 1031 exchange. Once that property is designated as being part of the exchange, you now have 180 days to sell that property, designate the new property as part of the exchange and close on it. You can also designate multiple properties at once in the 1031 exchange.
Before you sell the property designated for the exchange, you must seek out the services of a qualified intermediary. This individual will be in charge of drafting up all the necessary documents to review and sign. They are also in charge of transferring the money from the buyer to seller during the closing.
These are three of the most important qualifications for a 1031 exchange, however there are more that you must consider. If you’re an investor and you think you may qualify for a 1031 exchange, reach out to us and we can connect you with various companies specializing in these in transactions, to see if you may be eligible in participation of this program.