If you haven’t used a 1031 exchange to buy and sell real estate investments, it’s something you should consider. This special provision of section 1031 of the tax code allows investors to defer capShould You Form an LLC? gains upon the sale of property. There’s a special MasterClass next week that you should register for, presented by EquityBuild Finance. In the meantime, here are five things you need to know in order to take advantage of a 1031 exchange.

 

1: You can only use the provision for investment real estate and business properties and can’t be for personal use such as a primary residence. Nor can the 1031 apply to an office building where you have your own office.

2: The exchange must be for “like kind” properties. That means exchanging an apartment building for another apartment building. Yet the term “like kind” is a bit hard to pin down and is rather liberal in fact. You can exchange rental property for a restaurant, for example.

3: You might need a lawyer for this one experienced in 1031 exchanges to walk you through the process and an independent facilitator. Other professionals to have on your team include 1031-savvy real estate agents, your CPA and financial advisor. The 1031 has lots of rules and can get complicated but once you know how the process works, it’s relatively simple.

4: You don’t have to have a property picked out to buy before initiating the 1031 process. You do however have to purchase (exchange) all new properties within 180 days in order to take advantage of the tax deferral. You also have a 45 day window in order to identify up to three potential acquisitions.

5: 1031 exchanges defer taxes, it doesn’t eliminate them, and can be used on any property exchange of at least greater or equal value of the property being sold.

As we mentioned earlier, to get more information about the 1031 process you should first register for next week’s MasterClass. In the meantime, if you have any questions you can contact us directly and we’ll have one of our 1031 experts reach out to you.