If you aren’t familiar with the tax protection afforded by 1031 exchange services, you’re probably missing out on a major way to save money and re-invest in other properties. A knowledgeable investment advisor such as Sunset Real Estate can facilitate a 1031 exchange for you, and help you take advantage of one of the biggest legally-allowed benefits in real estate investments today. We have arranged exchanges like these for many clients in the past, and we can save you a ton of money on your investments as well, if you contact us about setting up such an exchange.
How a 1031 exchange works for you
1031 like-kind exchanges have been in existence since 1921, when Congress realized how important it was to encourage re-investment in business assets. The main point of conducting a 1031 exchange is to defer taxes on any gains you’ve earned by the sale of real estate. The reason you can defer those tax payments is that you are re-investing in other real estate properties. When the purchase of real estate is structured as an exchange, you can essentially reduce your tax gain to zero, and use that cash instead to acquire other new property.
Requirements of a 1031 exchange
In order to reap the benefits of a 1031 exchange, the following requirements must be in place:
- Purchase must be setup as an exchange – a qualified intermediary (such as Sunset Real Estate) must be used to facilitate the purchase from a seller and sale to a buyer as a legitimate exchange. This intermediary will structure the transaction as an exchange for tax purposes, as opposed to an ordinary sale which would be followed by a purchase.
- Like-kind properties – the two properties involved in the exchange must be considered ‘like-kind’, although this is a fairly easy condition to meet, because most properties are considered to be like-kind. Two situations which would not be considered like-kind exchanges are owner-occupied residential property, and when one of the properties is situated outside the boundaries of the U.S.
- Must be held for investment purposes – both the sold property and the replacement property must be held for investment purposes.
- Equity must be re-invested – in order to be able to defer all taxes, the owner must re-invest all the equity in the sold property into the replacement property. It is also necessary for the newly acquired property to be at least equal to the sold property in value, or to exceed that value.
As you can see from the above, it is possible to gain a huge financial advantage from a 1031 exchange, because you would not have to pay taxes on newly acquired property, but could retain that money for new investments. When you’re thinking about setting up such an exchange, you should contact us about any real estate transactions in the San Diego area – or in La Jolla, University Heights, Mission Valley, North Park, South Park, Old Town, Pacific Beach, Rolando, or Point Loma. We can guide you through the process expertly, so you can derive all the advantages of a 1031 exchange.