ROLLING INVESTMENTS INTO A 1031 EXCHANGE

You’re probably thinking, “What is a 1031 Exchange?” It sounds like a train depot, but it certainly is not.

Generally, a 1031 Exchange is a legal tax strategy to assist real estate investors or owners selling real estate. It is also buying a replacement piece, or pieces, of investment real estate while deferring the capital gains and any depreciation recapture tax.  

Profits accumulate when properties are purchased and sold at a price higher than the purchase price.

This profit is taxable income in some form or another, depending upon the entity type used to purchase the home.

The government created the 1031 Exchange for real estate investors to encourage continuous investment. This tax tool allows the investor to sell their property at a premium and then reinvest in another property or property while not paying capital gains tax at this time.

1031 EXCHANGE OPTIONS

As with any investment or tax tool, they come in multiple flavors. Here are the different types of 1031 Exchanges available today.

  • Simultaneous Exchange: the properties are sold and purchased simultaneously. This type of exchange is quite common among investors but also homeowners.
  • Delayed Exchange: there is a period between the property sold and purchased property. The US Treasury Department has strict time requirements with this particular strategy.
  • Reverse Exchange: Purchasing the new property before selling the currently owned property. Be sure to verify the IRS rules to conduct this transaction legally.
  • Personal Property Exchange: Personal property can also substitute for commercial property.
  • Knowing what to do and how to do it is vital when applying any form of 1031 Exchange.  

    Please consult your tax accountant before attempting this transaction. 

    While your title company is knowledgeable, they do not know the extent of your real estate business. Therefore, always verify your dealings with your tax accountant.  

    WHY DO A 1031 EXCHANGE?

    Deciding to do this type of transaction should come long before properties sell.

    As a real estate investor, managing your business, especially the houses you are flipping, must be done with a comprehensive tax strategy.

    When you purchase an unrenovated house, you should know how to dispose of the home financially.

    Understanding tax tools such as the 1031 Exchange will help mitigate undue tax burdens and assist your business growth.  

    It is essential that you understand that this is not tax evasion. That is illegal.  

    The 1031 Exchange is a tool the federal government offers real estate investors and homeowners to assist in their continual operations.  

    Remember, owning a home is the American dream, and our government wants to ensure that the nation’s real estate market continues to thrive for the benefit of all citizens.

    WHAT’S NEXT?

    Are you feeling overwhelmed? Confused? Are you wondering, “What did you say?”

    That’s okay. Most novice real estate investors and some seasoned investors who have not taken advantage of this tool feel likewise.

    Here’s what you need to do. 

    Join Glenn and Amber Schworm at their upcoming Home Flipping Workshop. It is a virtual event where the real estate investing business is peeled apart in digestible chunks for your enrichment.

    Learning all aspects of real estate investing is crucial to your long-term success.  

    Connect with Glenn and Amber today and begin a prosperous journey.