Learning The “Secrets” of Taxes

Benefits of 1031 Exchange for Real Estate

In any real estate transaction, financing and taxes are the main causes of worry for buyers and sellers. Favorable financing terms and like-kind exchange opportunities that help with tax consequences are what buyers and sellers of real estate need to achieve their goals. The deferral of capital gains taxes is contained in section 1031 of the Internal Revenue Code of the US. With the 1031 exchange real estate sellers can gain much. By the 1031 exchange, capital gain taxes can be deferred on sale of real property if the money is to be used to purchase a replacement property. This does not mean that the taxes are eliminated on capital gains but it is deferred until the property is sold for cash. Tax deferred exchange is another name for the 1031 exchange.

Diversifying income can be made possible through real estate investments.

Changing the status of your home from residence to rental property can qualify you for 1031 exchange. Making your home a rental property forbids you to use it as a residence for the most part and you have it rented out in more months. When this happens you qualify for tax benefits in a 1031 exchange.

This is how 1031 exchange options work.
To be able to sell your property and buy a replacement on needs the help of a qualified intermediary.

Through the 1031 exchange rules, you identify the property you wish to sell, deferring capital gains taxes on the profit from the sale.

You also next need to identify the property that you want to buy to replace the original property you sold. Because of strict time limits that can cause you to miss the tax benefits of a 1031 exchange, you need to identify this ahead of time. Taking too long will disqualify you from this tax benefit. With the help of qualified intermediaries you will be able to beat the timeline.

The qualified intermediary will hold the proceeds from the first sale until the second property will be purchased.

The requirements for a 1031 exchange is met by following the steps above. For more information you need to consult with a legal or accounting professional.

If a real property is management intensive, the owner can exchange it for quality property with a great income potential, increase tax benefits and appreciation potential. Capital gains tax will be deferred through the exchange which give the property owner more proceeds to purchase a replacement property. The 1031 exchange enables investors to reorganize and improve their real estate portfolio to suit their interests and needs. With the use of the internet platform, people can gather information on real estates and there are websites created to inform people about the 1031 tax deferred exchange, like-kind property exchange and qualified intermediaries.

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