Typically when a property owner sells his or her property, he is taxed on any gain realized from the sale.Â
However, when a Section 1031 exchange is utilized, the tax on the gain is deferred until some future date.
Section 1031 provides that no gain or loss shall be recognized on the exchange of property held for productive use in the trade or business, or for investment.Â A tax deferred exchange is a method in which a property owner trades one or more relinquished properties for one or more replacement properties of â€œlike-kindâ€, while deferring the payment of federal income taxes and some state taxes on the transaction.
If you own investment property and are contemplating a sale then you should consider a Section 1031 exchange..Â Sometimes, particularly in a volatile real estate market, it can be hard to find a replacement within the 45-day designation time period, so you can also consider a reverse exchange whereby you actually purchase the replacement property first and then sell the relinquished property afterwards.
For the savvy investor, this tax deferment strategy should be a part of your arsenal.
Helene M Moore
Windermere Prestige Properties