According to Myles Haverluck tax liabilities in real estate can be significantly reduced by using a well-hidden strategy known as the 1031 Exchange. It’s a tax strategy investors use to avoid paying capital gains.
Any property owner or investor should consider an exchange when he/she expects to acquire a replacement “like kind” property following the sale of any existing investment property. Anything otherwise would necessitate the payment of a capital gain tax.
This form simply allows you to roll-over the profits that have been made from a sale of real estate property. From here, you can invest in another property instead of paying the tax back on the property that was already purchased.
• The major benefit of a 1031 exchange is that it allows for you to be able to delay taxes and instead invest into other properties.
• A second benefit to a 1031 exchange is that it allows for more equity to be a part of the investment. Because of this, each time you invest in a new property from the 1031 exchange, the properties will gain a higher value.
The one thing to keep in mind if you are considering a 1031 exchange is that the new investment has to be what is known as “like kind.” This means that the exchanged property must be the same as the property you are selling.
Before getting into a 1031 exchange, it is important to consider this point, as it can cause for problems with new investments later. If you concentrate on two major timelines, says Myles Haverluck tax reductions can become a sure thing.
The Two Major Timelines
1. You only have 45 days from the day of relinquishing your property to identify other replacement properties you propose to buy.
2. You only have 180 days from the time you sell the relinquished property to receive the replacement property. There are no extensions, even if that day falls on a holiday or weekend.
While this is a short summary of how to benefit from the 1031 Exchange, there are many other scenarios.