1031 Exchange is a swap of one investment property for another while using the capital gains taxes from the sale of the property towards the purchase of the new property. A very common strategy to maintain wealth and increase leverage.
Utilize sale and purchase to climbing into higher % of $ return on investment and jumping to the next level.
Exchange (1031 Exchange) -Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property.
All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction. The underlying philosophy behind the deferral of capital gains taxes is that taxation should not occur as long as the original investment remains intact in the form of (like-kind) real estate (like-kind refers to real property as such, rather than the quality or quantity of property).
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Proceeds from the sale of a property, including the capital gains tax, are deposited with a qualified intermediary in a Trust
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The investor has 45 days to identify a like-kind property for his/her investment (real LOIs need to be signed)
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After the 45 days, the investor has 180 days to close the purchase of the new property
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At closings, the proceeds and capital gains taxes from the trust roll into the purchase of the new asset
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