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1031Gateway: A Beginner's Guide to 1031 Exchange

 

Tax-deferred real estate exchanges or 1031 exchanges have been around since 1991 but many people still don't have a clue of what it means and how they can benefit from it. A 1031 exchange is a form of leveraging your finances, wherein the taxes you would have paid to the government can be used to earn you money. The 1031 exchange allows you to postpone your long-term capital gains tax when it comes to selling an investment property by exchanging properties and gain earnings through a new investment property. The first rule in 1031 investment properties exchange is that both new and old properties are held for investment or used in business or trade. In simpler terms, a 1031 exchange involves moving the gain from the old investment property sales into the purchase of a new investment property in order to defer tax payment on that gain in the future.

 

For instance, James Joe sells her apartment rental house for $300,000. He bought it five years ago for $250,000. Now following the 1031 exchange, he buys another property investment for $300,000, and he can transfer all his gain into his new investment property instead of paying his taxes on the sale. A lot of people think that if you sold a yellow duplex, you should buy a yellow duplex, but this isn't the case, you can purchase any other type of investment real estate, you can purchase an office building, a warehouse,  an apartment building, or even a bare land.

 

The 1031Gateway exchange under IRS uses the term "like-kind" which means both of your old and new investment properties should need to qualify for business or investment use. Now if your old and new properties pass the test, you can exchange nearly any kind of real estate for any other type. The value of the old and new investment properties may not necessarily be equal. For you not to pay tax from the old property sale, you need to purchase a new property that is equal or above the amount of the old property. If James sells his old property for $300,000 and purchases a new property for only $280,000, this does not disqualify her to the entire 1031 exchange. She just needs to pay tax on the $20,000 buy-down and the entire $20,000 will be taxable.

 

Now, you have a rough idea how 1031 exchange means, and you are more confident in dealing with your real estate properties and in making sure that you are following the law when it comes to 1031 exchanges while you defer your taxes in an acceptable manner. If you need more information about 1031 exchange or you want to know the 1031 exchange properties for sale, 1031Gateway can help you out! Feel free to check us out now! For more facts and info about 1031 Exchange, Visit http://www.huffingtonpost.com/news/1031-exchange/.