Your business is changing, and so are your real estate needs. Maybe the office building you own is too small with the growth in employees? Or maybe you own multifamily housing units and want to change your investment strategy to commercial real estate? So how do you make these investments and keep the equity out of Uncle Sam’s Pocket? Maybe a 1031 exchange can help.
WHAT IS A 1031 EXCHANGE?
A 1031 exchange is a tax deferment strategy that can be used by investors in commercial and residential real estate. In brief, it allows investors to defer federal income taxes on the sale of a property if the sale proceeds are used to purchase another property.
WHY SHOULD I CARE?
You will keep more of your money! By deferring federal income taxes generated from the sale of your property, you will be able to roll all your equity into a replacement property. If you sell property outside of an exchange, it is highly probable that Uncle Sam will want a share of the proceeds. Bottom line, if you own investment or commercial use property, you need to know about 1031 exchanges.
WHAT ELSE DO I NEED TO KNOW?
As with any tax-saving strategy, there are many rules that come into play. The basics are summarized below. Please note that there are many considerations not included in this article.
WHO CAN HELP ME WITH THIS?
In order to complete a 1031 exchange, you must work with a qualified intermediary to hold the proceeds of the initial sale until you close on a replacement property. There are quite a few companies that offer this service; just do an internet search for “1031 broker.” Many of these companies can also assist you with finding replacement proper-ties or offer other value-added services.
It would also be prudent to communicate early and often with your tax professional in order to make sure that you complete a transaction that qualifies as a 1031 exchange, and that the exchange is reported properly to the IRS. Please feel free to call ADKF at 210-829-1300. We are here to help!