The Prepared Investor - 1031 Exchange Basics

A 1031 exchange is a way to delay taxes when selling one property and purchasing another. Properties used for business or investment may qualify. When executed properly, it may result in dramatic savings. This blog post discusses the advantages of 1031 exchanges for tax deferment in Charlotte NC.

Qualified Property

You must have a qualified property in order to consider a tax deferred 1031 exchange. Qualified real estate are ones used for a trade or for investment. They can include land, residential, rental, commercial, and industrial real estate. You must also purchase similar property that is also qualified.

Advantages Of 1031 Exchanges For Tax Deferment In Charlotte NC

Typically, when you sell investment real estate, you pay capital gains taxes on the proceeds from the sale. This applies despite what you intend to do with that money earned. Taxes may be owed to the federal government and local state. Based on how long you held an investment and how much equity you have in it, the taxes due may be quite significant. A 1031 exchange allows you to divert the earnings from one property directly into the purchase of another similar property and defer capital gains taxes until you sell that new real estate. Of course, another 1031 exchange could be an option on that other property to postpone taxes even further.

Thinking About a 1031 Exchange

There are different components to a 1031 exchange that you must be aware of prior to listing a property. 1031 Exchanges are not something that you may initiate after the fact. You must intend to use an exchange when you list qualified real estate for sale. Very specific timelines must be adhered to to conform to the exchange. This includes deadlines for selecting and closing on a replacement. A qualified intermediary must also be involved to administer the funds. If a deadline is missed, all potential tax savings will be void. Consult with an experienced attorney for help with 1031 exchanges and to enjoy the advantages of 1031 exchanges for tax deferment in Charlotte NC.