A 1031 exchange is a method for deferring taxes on the sale of one property by buying another. Properties used for business or investment may qualify. When executed properly, it can lead to dramatic savings. This article outlines the benefits of 1031 tax deferred exchanges in North Reading MA.
Types of Properties that Qualify
You must own a qualified property before considering a 1031 exchange. Qualified properties are ones used in a business/trade or for investment. It may be rental, land, residential, industrial, and commercial real estate. You must also intend to purchase similar real estate that is also qualified.
Benefits Of 1031 Tax Deferred Exchanges In North Reading MA
Normally, when you sell an investment property, you pay capital gains taxes on the earnings from the sale. This applies despite what you intend to do with that funds. Taxes can be owed to the federal and state government. Depending on how long you held a piece of real estate and how much equity you have in it, the taxes owed can be quite large. A 1031 exchange allows you to put the earnings from one property towards buying a new like-kind property and postpone capital gains taxes until you sell that new property. Another 1031 exchange could be performed on that future sale to postpone taxes yet again.
Thinking About a 1031 Exchange
There are many elements to a 1031 exchange that you must be aware of prior to selling a qualified property. 1031 Exchanges can not be performed after a sale is complete. You must plan to perform an exchange when you list a qualified property for sale. Very exact guidelines must be observed to complete the exchange. This includes deadlines for narrowing down and closing on replacement property. A qualified intermediary must also be employed to manage the exchange and funds. If a step or deadline is missed, all applicable tax savings will be void. Speak with an experienced 1031 exchange consultant for additional guidance on 1031 exchanges and to reap the full benefits of 1031 tax deferred exchanges in North Reading MA.