How To Complete a 1031 Tax Deferred Exchange
by Janet Wickell
What is the purpose of a 1031 exchange?A 1031 tax deferred exchange allows you to roll-over all of the proceeds received from the sale of an investment property into the purchase of one or more other like-kind investment properties. At closing, proceeds are transferred to a third party--called a facilitator or qualified intermediary--who holds them until they are used acquire the new property.
A 1031 exchange is often referred to as a Starker exchange.
Exchanges Allow You to Delay Capital Gains Taxes
The deferment is like getting an interest-free loan on the tax dollars you would have owed for a cash sale. More equity is retained, and that helps you move into properties of higher value each time you perform a 1031 exchange.
It cannot be used for the sale of your personal residence.
Like Kind Properties
You can exchange a single property for multiple properties, or purchase one property from the proceeds of several. Proceeds not used to purchase new investment property are taxed as a cash sale.
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