All you Need to Know Before Doing a 1031 Exchange

If you are a real estate investor, you may have heard about 1031 exchanges. It is a great option for investors that want to increase the cash flow by pushing forward the taxes. It is something that has been used in the real estate industry for years now and there seems to be no end in sight for its applications. If you sell a qualified property, you can delay paying taxes on investment profits in a legal way through a properly handled 1031 exchange. When you complete the sale of a business or investment property at a profit, the profits to make on the sale are taxed.

However, you can defer the payment of the taxes if you reinvest the gains in similar property. Such a transaction is not considered to be a sale but an exchange. This is the best way you can qualify for a 1031 exchange. If you are new to the landscape of 1031 exchanges, you may easily get overwhelmed by the different stones used and how to complete such an exchange. This website looks to help you understand 1031 exchange is better by providing you with more information about property exchanges. You may visit this page here.

You should understand that not every entity or asset qualifies for a 1031 exchange. A 1031 exchange is almost comparable to a traditional tax-deferred retirement plan. If you make transactions within your retirement plan, they are not taxable. The capital profits that should be taxed are deferred when you complete the sale of any other assets within your retirement plan. Unless you withdraw cash from a qualified retirement plan, you do not pay any taxes. It is the same principle that is applied in 1031 exchanges in the real estate industry. Capital gains taxes can always be diverted provided that the money made from the sale continues to be reinvested in similar real estate properties. Read more here: https://www.britannica.com/topic/enterprise-investment.

The services of a qualified intermediary are required in order to effectively execute 1031 exchange. the financial transactions involved in a 1031 exchange such as the proceeds from the sale of the initial property should pass through a qualified intermediary. The intermediary is tasked with holding all the profits from the sale after which they discuss their proceeds upon the closing of the exchanged property. You can only be qualified if all the money from the original sale is reinvested in acquiring the new real estate property. If you retain any money from the sale, it has to be taxed. The qualified intermediary receive the proceeds directly from the title company handling the closing. You can have information on delaware statutory trust here.