A 1031 exchange is a real estate investing tool that allows investors to defer paying capital gains tax on a property. You can swap out an investment property for another and defer capital gains tax that you otherwise would have to pay during the sale. Be sure to begin working with a QT or qualified intermediary before you sell or buy the properties.
Here is a quick refresher:
- A 1031 Exchange allows you to defer (not avoid) the capital gains tax you would otherwise pay
- Must be an exchange for a like or better property, equal or greater in value
- 1031 exchanges cannot be used for a personal residence transactions or a dual purpose homes (i.e: a vacation home that you stay at). The property must be an investment property.
- Must be same owner or same LLC transfer, cannot be owner to LLC transfer
- Fees for the exchange process to the QT are generally around $1,500
- You have 45 days to identify the next property (can identify up to 3 properties) and 180 days to close
- There are no extensions to a closing date
- The QT will communicate with the Title company
- The QT will holds funds in a separate bank account
- QTs say to avoid flips or short term properties, it is designed for a longer term investment property
Further resources on this: https://www.firstexchange.com/
