Building Wealth Deferring Taxes: The 1031 Exchange Strategy
As a real estate investor, you likely heard of a 1031 Exchange for like kind property.
Yet, you may not be aware of the details of when to implement a 1031 Exchange, why it can be beneficial, and why you need to know.
Savvy investors use a 1031 Exchange to create generational wealth.
Savings from the deferred taxes are used to scale a portfolio more quickly.
The term 1031 Exchange gets its name from the Internal Revenue Service (IRS) code Section 1031 that allows owners of investment property to defer federal taxes on certain exchanges of real estate.
In this training, Jeff and LeAnn will share valuable information about the 1031 Exchange Strategy and how you, as a real estate investor, can benefit from it, plus...
- • What is a 1031 Exchange
- • Key Benefits - Tax Deferment
- • Who Qualifies for an Exchange
- • How Real Estate Investors can use it to Build Wealth
Jeff Peterson, Tax Attorney, 1031 Exchange Facilitator, Educator. SING IT FROM THE MOUNTAIN TOPS! Unshakeable confidence, real sincerity, and subject matter mastery that comes from decades of legitimate, practical experience of working in the trenches, pounding out complicated 1031 exchange deals and winning hearts and minds. Jeff Peterson is not just a 1031 attorney adjunct tax professor...but a true resource of ALL THINGS 1031.
A consummate professional, Jeff is sought after because he really helps people. He strives to inspire and postively infuence clients, colleagues and other constituents to shape solutions and create Win/Win outcomes.
How Does a 1031 Work? What Types of Properties are Allowed? What is the 45-Day and the 180-Day Rule?
How Does a 1031 Work?
Generally, a 1031 is used to swap—or exchange—one like-kind investment property for another without incurring capital gains, so it’s basically a tax-deferred investment. The replacement property must be of equal or greater value than the relinquished property.
To comply with IRS regulations, you must enter into an Exchange Agreement with a qualified intermediary, who handles the funds between the two transactions.
Because there’s no limit on the number of times you can do a 1031 or how frequently, you can roll over the gain again and again and avoid or limit your tax liability OR until you ultimately sell the property for cash. And then you pay just one long-term capital gains tax at the current rate. This is how generational wealth is passed forward with deferred taxes.
What Types of Properties are Allowed?
Remember, a 1031 exchange involves selling a property and reinvesting quickly in another like-kind property. It’s important to understand buyers or sellers of their own homes cannot utilize this tax advantage.
The term “like-kind” has limitations and guidelines that MUST be met, but to do the exchange, the new property doesn’t have to be a totally similar property to the one you sold.
The IRS allows exchanges of an apartment building for a strip mall, as an example. But there are rules and limitations--like vacation homes--so be sure to fully understand what you’re doing before you begin the exchange process.
What is the 45-Day and the 180-Day Rule?
Within 45 days of the sale of your investment property, you must designate in writing a replacement property that you want to purchase. In addition, the IRS requires that you must close on the new property within 180 days of the sale of the first property. These timelines run concurrently, so if you identify your replacement property 45 days after the sale of the first property, you have just 135 days left to close on the new property.
If you cannot locate a new property within the rules, you will not be penalized by the IRS. The exchange simply fails, and you will be required to pay taxes on the gain.
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