Solve Your Real Estate Woes With a 1031 Exchange!
Many people have found themselves awaiting the return of the real estate market and are too timid to sell their property because of tax gains or losses. But there is a solution. It’s a fairly simple process to buy and sell property simultaneously without some tax implications. Of course, I’m not a lawyer or a CPA so you will need to check with them for advice before making a move on a 1031 Exchange.
However, I have been through the process and found it to be quite simple. For me, I wanted to buy property that I could hold and use in the future, but didn't want to immediately pay tax gains on the property that I was looking to sell. So I figured this would be a good time to test this 1031 Exchange process. Here’s an example of what you can do.
Lets say that you have owned a few acres in your hometown of Blythewood SC since you were a teenager. But after renting a house near Lake Murray for several years you’ve decided that one day you would like to build a waterfront home on Lake Murray. You don’t owe any money on your land in Blythewood, but it’s worth $200,000. And oddly enough, the land for sale on Lake Murray that you have found is priced at $200,000. Rather than selling your property and putting the proceeds in your bank account. You could exchange the property with the 1031 program and defer the tax gains. But there are some ground rules.
- First of all, it has to be “like-kind” property. I’m not sure exactly what this means, but to me it means that you can’t exchange a primary residence for an apartment building…but again…ask your lawyer or CPA.
- Secondly, you must identify the new property within 45 days and close on it within 180 days. I knew what property I wanted and secured a contract immediately to purchase a new property. Why wait?
- Additionally, you must use a closing attorney that is approved to hold (better known as escrow) the proceeds from the sale of your property. Not all attorneys have this type of escrow account, but your closing attorney should be familiar with the process.
FYI, we are a real estate company and we broker real estate. We are not financial consultants, CPAs or Lawyers. We don’t have the authority to consult you of what to do with your investments. So please take a minute to verify all of this information with the IRS website. But if you are interested in a 1031 exchange for real property, we can help you buy and/or sell real estate. It's what we do.