What is a § 1031 Exchange?
Gains on the sale of investment or business-use real estate can be subject to as much as 40% federal and state income taxes! If the owner is selling one property to invest in another property (or properties), Section 1031 can be utilized to indefinitely defer all income tax these gains. There are very strict rules that must be followed to secure these lucrative tax benefits, and § 1031 exchanges are not for everyone nor every deal.
§ 1031 Illustrated
Example: Owner of apartment building with tax basis of $300k is receiving net sale proceeds of $1.5M and looking to invest in a new commercial property for $1.5M. Without § 1031, the sale would trigger approximately $300k in federal and state income taxes.
§ 1031 Exchange Benefits
Under § 1031 the seller rolls over their existing basis into the new property and pays ZERO INCOME TAX until the next property is sold, unless another § 1031 exchange is done, which can be repeated indefinitely!
Why the § 1031 Might Not Be Right For You:
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