Defer Taxes By Section 1031 exchange

1031 is a section code of the IRS which has been around since the 1920s, 1031 exchange is the normally used tax deferral tool in real estate. The deferral treatment of capital gains of a 1031 exchange gives the seller of property the best vehicle for safeguarding and building real estate wealth. The provision of the IRC (Internal Revenue Code) Section 1031 allows property owners to exchange their property for other like-kind property with no acknowledgment of capital gains liability or recover of depreciation at the time of the sale.

Section 1031 Exchange is a six-step process-

1. The first step is to put your Investment Property on sale and, at the same time, apply for 1031 exchange too.
2. The next step is to decide the type for 1031 Exchange and the amount on which the process for relinquishing the property begins.
3. After entering into 1031 Exchange, the investor needs to fill all the details of the chosen Replacement Property within 45 days of filling for 1031 Exchange. Please note, make your choice wisely as once you transfer your Replacement Property, you won’t be able to make any improvements to it again.
4. After this, the property is ready to be bought. The investor has to inform the seller and buy Replacement Property as an important part of the exchange program.
5. After 180 days, 1031 Exchange will consequently close your Replacement Property, and you can keep saving Capital Gains tax. You can pursue a similar process to reclaim tax on your other investment properties.
6. Exchanger will identify the replacement property within 45 days, and then the information is sent to QI (Qualified Intermediary). The deal is closed within 180 days by your selected 1031 method, and the investor will start getting the monetary gains.

1031 Exchange Timeline Calculator in brief:

There is a time period 45 days for the identification of property under 1031 exchange and a total of 180 days to acquire the property.

Day 0

Registration of the property for 1031 Exchange and find a Replacement Property

Day 45

From Day 0 to Day 45, the taxpayer or the investor search for the property and upload the details of their chosen Replacement Property.

Day 180

From 45th day to 180th day, the exchanger is supposed to close the deal, and after that, they are deferred from paying capital gains tax on the property.

Advantages Of Section 1031 Exchange

Along with selling the property, the investor can make a steady income in the form of tax returns from the property.

Under 1031 Exchange, the investor is allowed to buy any Like-Kind Property. It can either be commercial.

The investor can easily exchange their demanding property with a property with an easily manageable property.

1031 exchange enables the investor to make property exchange in a different state as well.

The investor can easily exchange multiple properties for a single property, which is not only advantageous but also manageable.

The investor can save up to 37.5% funds from the property by filing for 1031 Exchange.