A 1031 exchange is areal estate investing toolthat allows investors to swap out an investment property for another and defer capital gains or losses or capital gains tax that you otherwise would have to pay at the time of sale. This method is popular with investors looking to upgrade properties without being charged taxes for the proceeds.
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What is a 1031 exchange on an investment property?
This section allows for the seller of an investment property to defer paying capital gains by using the proceeds from that property to buy a replacement investment property. What are the benefits of doing a 1031 exchange? As an investor, there are some reasons why you may consider using a 1031 exchange.
What does 1031 mean?
A 1031 property exchange allows you to defer (not eliminate) taxes on capital gains and the accumulated depreciation. Properties generally qualify for a 1031 exchange if they檙e used in a business or for investment. The properties being exchanged can differ in quality and be used for different purposes.
How often can you do a 1031 exchange?
The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred. If used correctly, there is no limit on how frequently you can do 1031 exchanges. The rules can apply to a former primary residence under very specific conditions. What Is Section 1031?
How many like-kind properties can you buy on a 1031 exchange?
When you do a 1031 exchange, the IRS limits how many like-kind properties you can identify during the 45-day period. The most popular rule, the three-property rule, allows you to identify up to three properties of any value with the requirement that you buy at least one of them.