A 1031 exchange is a method for deferring taxes when selling one property and purchasing another. Properties used for business or investment can qualify. When executed properly, it can lead to significant savings. This blog discusses the advantages of 1031 exchanges for tax deferment in Singer Island FL.
Types of Properties that Qualify
You must own a qualified property before considering a 1031 exchange. Qualified real estate are ones used in a business/trade or for investment. It can be rental, land, residential, industrial, and commercial real estate. You must also expect to buy new like-kind real estate that is also qualified.
Advantages Of 1031 Exchanges For Tax Deferment In Singer Island FL
Typically, when you sell an investment property, you must pay capital gains taxes on the proceeds from the sale. This is true despite what the funds are used for afterwards. Taxes can be owed to the federal and state government. Based on how long you held a piece of real estate and the amount of equity, the taxes due may be quite large. A 1031 exchange gives you a means to redirect the earnings from one property directly into purchasing a new like-kind property and delay capital gains taxes until you sell that new property. Of course, another 1031 exchange could be possible on that future sale to defer taxes again.
Preparing for a 1031 Exchange
There are several components to a 1031 exchange that you should understand BEFORE selling a qualified property. 1031 Exchanges are not something that you can start after a sale is complete. You must intend to complete an exchange when you list qualified real estate for sale. Very specific timelines must be adhered to to complete the exchange. This includes time frames for finding and buying replacement property. A qualified intermediary must also be employed to administer the exchange and funds. If a step or deadline is missed, all tax savings will be forfeited. Speak with an experienced financial advisor for additional information on 1031 exchanges and to enjoy the full advantages of 1031 exchanges for tax deferment in Singer Island FL.
