1031 exchange?

Question

I've heard this many times, but don't understand it. Here's my scenario...I own a rental property worth $600,000, and am looking to sell it and purchase a different rental property for $2,400,000. Is 1031 exchange something I should be talking to my accountant about, or is it not related to my scenario?

Answer 1

Any time you're selling investment property and using the proceeds to purchase investment property, you should defer the taxes, so you'll HAVE all your proceeds to invest. Yes, talk to your CPA.

Answer 2

First, you should always talk with your accountant and a well-educated real estate agent before entering into a 1031 Exchange.

Any property held for investment or the productive use in trade or business is eligible for a 1031 exchange. As you are selling a rental property and buying a rental property, your situation applies.

A 1031 Exchange allows you to defer you capital gains tax freeing up equity for the purchase of the replacement property. The purchase property must hold title in the same manner as the relinquished property. The replacement property must be identified within 45 days of the close of the sale of the relinquished property and the purchase must close within 180 days.

This can be a complicated process. Make sure you have an expert team assisting you on this transaction. It is well worth it.

Answer 3

Good question. A 1031 exchange is called a 'like-kind exchange' by the IRS. You are basically selling one investment property, and putting the proceeds of the property in a 1031 exchange 'bucket' (without you taking any of the money), and using all of that money in the 1031 'bucket' to buy a new 'like-kind' property of possibly higher value. This 1031 exchange allows you to defer paying capital gains taxes on selling your first property. This has to be done on paper before you sell your property - otherwise, if the proceeds of the sale comes into your hands, you don't get the tax benefits.

You should consult a 1031 exchange company if you want to do the 1031 exchange - this is the best way to make sure everything is done right.

Answer 4

Sorry, yet you won't be able to try this. A 1031 substitute is basically for deferral of earnings on the substitute of corporation factors. Assuming which you're observing procuring and advertising apartment residences -- you won't be able to do a 1031 substitute which includes your own residence -- in case then you definately convert the exchanged apartment to a private residence you will might desire to in the present day pay the capital helpful factors tax on the deferred earnings.