what is a 1031 real estate exchange
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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.
What is boot in a 1031 exchange?
The difference in value between a property and the one being exchanged is called boot. If a replacement property is of lesser value than the property sold, the difference (cash boot) is taxable. If personal property or non-like-kind property is used to complete the transaction, it is also boot, but it does not disqualify for a 1031 exchange.
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?