Whether you’ve been renting out apartments for years or are just dipping your toes into the investment property pool, the details of real estate law can quickly become complicated. However, by taking the time to learn about some of the more complex strategies, such as 1031 exchanges, you could save a significant amount of money. If you’re looking for more information on this strategy, consider the following guide.
A Guide to 1031 Exchanges in Real Estate Law
What Are They?
The 1031 exchange is so-named because its definition is found in section 1031 of the IRS code. When you conduct this strategy, you can postpone capital gains tax payments when selling an investment property. However, you must purchase a “like-kind” property with the money you gain from the sale in order to defer taxes.
A like-kind property is real estate of the “same nature or character” as your original property. However, there is some maneuvering room. You could, for example, swap an apartment building for a duplex or a vacation rental with a restaurant.
What Are the Benefits?
A 1031 exchange works well if you want to sell a rental property for much more than it was first purchased for. In addition to helping you stave off hefty taxes, 1031 exchanges allow real estate investors to choose a new investment focus without carrying the tax liability on their shoulders. For example, if you want to switch from maintaining an apartment building to maintaining a commercial office, you could do so without paying the taxes right away.
How Can a Lawyer Help?
When it comes to tax-deferment strategies, there are an innumerable amount of moving parts. For example, some properties—such as primary residences—are not eligible for 1031 exchanges and the property you swap for must be of greater than or equal to the value of yours.
Also, there are deadlines you must meet to avoid paying capital gains taxes—you only have 45 days to designate a replacement property and 180 days to close on it. Furthermore, there are four different kinds of 1031 exchanges: a simultaneous, delayed, reverse, or improvement exchange.
All of these details can be confusing, which means there’s a considerable chance your property swap could fall through. A lawyer who has a background in real estate law can offer calculated guidance, letting you know whether or not your property is eligible and how to complete a successful exchange in time. If you run into any issues with the other property owners or need clarification on IRS law, they can also provide the expertise required.
If you’re hoping to utilize this strategy, turn to The Law Offices of Bromm, Lindahl, Freeman-Caddy & Lausterer in Wahoo, NE. These real estate law attorneys have been helping clients since their founding in 1893, while continuously striving to keep up-to-date on legal changes. Visit their website to learn more about their diverse practice areas. To schedule a consultation with this AV® Preeminent™-rated firm, call (402) 443-3225.