Why Section 1031 Will Cut Your Taxes

1031 Exchanges

If you own one or more investment properties, you probably know about Section 1031 of the Internal Revenue Code. If you dont know abot 1031 exchanges,  it allows an owner of an investment property to defers the tax consequences around a property sale. Basically, it allows you to roll over the proceeds so you can buy anther investment property.  To quote directly from a recent AppleSeed.com article, here are the conditions for using the 1031 exchange:

• The property sold must be an investment property not a primary home.
• The new property needs to be “like-kind” and of equal or greater value to gain the full benefit.
• The new property must be identified within 45 days of closing on the existing property.
• The new purchase must be made within 180 days of the said sale.
• All of the sale proceeds (held in escrow until the time of the new purchase) must be used towards the purchase of the new property.
• The initial sales contract must designate the property sold as a 1031 tax exchange candidate.

Many believe that the use of 1031 exchanges will increase in the next year or so. Their rationale is that current long-term capital gains tax will rise from 15% to 20% by next year, and that there are rumors that President Obama will push for it to go up to 24% or higher in the coming years. Section 1031 is already used by many investors to defer tax payments and instead leverage those funds to purchase another property, in turn raising the return potential.

If you are dealing with investment properties in the current market, educate yourself about Section 1031 and give me a call. I’m happy to help.

Photo Credit: andrew mace–

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