Investing in real estate is quite lucrative when the perfect property is purchased at the right price. Thanks to potential appreciation, investors earn income on the proceeds when the property sells. The downside is that when real estate sells, the seller is subject to capital gains and recaptured depreciation tax. And, these tax levies can be quite hefty. However, real estate investing with 1031 exchanges allows the deferment of these taxes thanks to provisions made possible by the IRS.
How Real Estate Investing with 1031 Exchanges Works
Internal Revenue Code 1031 (IRC 1031) provides a powerful maneuver that allows investors to defer paying taxes upon the sale of investment property. A 1031 exchange involves selling one piece of investment property and using the proceeds to buy another property. But, the new property must be of equal or greater value to achieve deferment of all taxation. The tax dollars saved in exchanges creates a surplus investing capital for additional investments in real estate.
Notably, there are provisions in place to ensure real estate investing with 1031 exchanges is performed properly. First, all property involved in exchanges must be for business or investment purposes only. Additionally, the IRS requires the use of a qualified intermediary, such as Midland, to facilitate exchanges. Lastly, there are time limits in which the exchange must take place to achieve the tax-saving benefits.
In conclusion, this short video explains five things you need to know about real estate investing with 1031 exchanges.
Midland is a trusted, qualified intermediary with many years of experience facilitating 1031s. We perform hundreds of exchanges every year for clients who understand the benefits of these investment transactions. We have Certified Exchange Specialists® on staff to ensure all exchanges are performed within compliance of IRS regulations.
Contact us today to learn more about how exchanges can help you meet your investing goals.