In the last few videos, we have discussed topics related to real estate investing. This week, we are discussing 1031 exchanges. Your natural question may be, what is a 1031 exchange? A 1031 allows a real estate investor to defer the payment of capital gains by allowing a “like-kind exchange.”
When a real estate investor sells, they may have to pay capital gains tax. If that real estate investor intends to sell their property but wants to acquire another investment property, they can utilize the services of a qualified intermediary to perform a like-kind exchange. A like-kind exchange simply means that the property that is sold and acquired is of the same kind, that is, investment property.
What will you need? First, you must use the services of a qualified intermediary. An ordinary CPA or real estate attorney will not suffice—though you should consult both before attempting to perform such an exchange. A qualified intermediary is certified by the IRS to handle the proceeds of the sale. The real estate investor never touches the proceeds.
What are the basic limitations? A 1031 exchange is only available for investment properties. The investor must identify three properties within forty-five (45) days of the sale. Finally, the second transaction must occur within six (6) months of the sale.
1031 exchanges can defer capital gains taxes and substantially increase the real estate investor’s purchasing power. If you have any questions about 1031 exchanges or would like a referral to a qualified intermediary or CPA, contact Stiles Law by calling (781) 319-1900
Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions. Stiles Law serves all areas of eastern Massachusetts–the North Shore, Boston, and Cape Cod, in addition to the entire South Shore, including: Plymouth, Kingston, Duxbury, Hanover, Pembroke, Marshfield, Scituate, Norwell, Cohasset, Hull, Hingham, Weymouth, Braintree, and Quincy.
Copyright © 2019 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts.