The biggest benefits of investing in real estate are the tax benefits. One of the most utilized mechanisms to carry out business tax strategies is the 1031 tax-deferred exchange. Simply, a 1031 exchange allows investors to defer taxes and build wealth over time, by deferring the tax you’d pay in a conventional sale and reinvesting it into a new property of equal or greater value.
1031 exchanges must adhere to strict IRS guidelines and can be quite complicated, requiring qualified intermediaries, attorneys and accountants. It becomes essential to assemble the right team of experienced professionals. Avison Young U.S. Capital Markets Net Lease Group works with clients to establish solid exchange teams. Exchanges happen quickly, and we can assist you in finding opportunities early to ease the anxiety that can occur once the exchange clock starts ticking. From the onset, our team will help you set the right strategies, identify the right investments and execute a swift, easy transaction with the new property(ies).
The properties involved must be “like-kind”. This requirement is liberally interpreted, and virtually all real estate properties, whether raw land or those with substantial improvements, qualify as like-kind. However, REITs, real estate funds or other securities do not qualify for 1031 exchange.
Properties that can be exchanged include:
Raw Land, Multi-Family Rentals, Single-Family Rentals, Retail Centers, Office Buildings, Industrial Facilities, Storage Facilities, etc.
For a successful 1031 exchange, you have to play by the rules. These like-kind exchanges adhere to strict tax guidelines. Here are our 5 must-dos for a smooth and successful 1031 tax deferred exchange.
Determine what is deferred capital gains and what is depreciation recapture.
Find a qualified Intermediary – reputable, credible and experienced. They will play an imperative role in your exchange process.
The property has to be held for investment or business purposes – on both ends of the transaction.
Know your timeline. These exchanges are fixed to a STRICT timeline.Your exchange must be identified in 45 days.
Start your search for exchange properties as quickly as possible. We recommend selling your current property before identifying.