1031 Exchange: What You Need To Know

Many homeowners have heard of a “1031 Exchange,” but few understand the basics of what an exchange actually entails.  Today I want to cover just a few of the basics of the process, as it can be an invaluable method of homeownership for investment buyers. 

What is a 1031 Exchange?
Put simply, it is the sale of one property in exchange for the purchase another property of similar value without the required payment of capital gains tax, all performed within a specific time frame.  An example of when you might use a 1031 Exchange, as opposed to selling a home and purchasing a new one outright:  you want to sell your current vacation home and purchase a new, similar one that has a few better features.  You have not yet owned your current vacation home for two years, so you are subject to substantial capital gains taxes when you sell it.  If you were to use a 1031 Exchange, you could “exchange” your current home for a new one and be relieved of the capital gains requirement.  It is this difference between “exchanging” and not simply buying and selling which, in the end, allows you, the taxpayer, to qualify for a deferred gain treatment. In a nutshell: sales are taxable with the IRS and 1031 exchanges are not. US CODE: Title 26, §1031. Exchange of Property Held for Productive Use or InvestmentImportant Rules of 1031 Exchange
1.       The total purchase price of the replacement “like kind” property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.
2.       All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, “like kind” property.

1031 Timelines and Rules 
Identification period – the seller has exactly 45 days from the sale of the original property to identify other replacement property(s) that he proposes or wishes to buy.   
Exchange period – the period during which the seller of the relinquished property must receive the replacement property.  This period ends exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person’s tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. 

Now is the time to be thinking about investing in a Jersey Shore beach home, before summer is upon us again!  If you want to learn more about strategies for buying and selling investment properties, or are interested in Bradley Beach NJ real estate, please call me at 732-775-2774 or visit PatrickParkerHomes.com.  To begin searching Jersey Shore homes, please use my complimentary MLS search.Happy new year – see you in 2008!

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About Patrick Parker Realty

Patrick Parker Realty, an independent boutique brokerage located in the heart of Bradley Beach is your local market leader. We understand the demands of a changing real estate market and avail ourselves of the latest industry information and tools to ensure excellent results. Our Commitment to You Our seasoned Real Estate Agents are committed to providing all of our clients, from first time sellers to veteran real estate investors, quality and friendly service. We walk you through every step of the sale process offering the guidance, feedback, and expertise needed to ensure your complete satisfaction.
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One Response to 1031 Exchange: What You Need To Know

  1. Robert says:

    This website is Great! I will recommend you to all my friends. I found so much useful things here. Thank you.3

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