Thinking about selling your property and reinvesting in something new? A 1031 Exchange could be your ticket to deferring capital gains taxes and maximizing your investment power. Here’s what commercial and residential real estate buyers and sellers should know, brought to you by Trilogy Group.
What is a 1031 Exchange?
A 1031 Exchange—named after Section 1031 of the IRS code—lets you sell a commercial property and reinvest the proceeds into another like-kind property, deferring capital gains taxes you’d otherwise owe on the sale. This powerful tool helps investors grow their portfolios and keep more of their money working for them.
Why Consider a 1031 Exchange?
- Tax Deferral: Defer paying capital gains taxes, freeing up more capital for your next purchase.
- Portfolio Growth: Reinvest in larger or more diversified properties.
- Estate Planning: Pass on properties with a stepped-up basis to heirs.
Key Rules to Remember
- Like-Kind Property: The new property must be of equal or greater value and used for business or investment.
- Strict Timelines: You have 45 days to identify replacement properties and 180 days to close after selling your original property.
- Qualified Intermediary: You’ll need a third party to hold the proceeds during the exchange—don’t take possession of the funds yourself.
Common Pitfalls
- Missing Deadlines: The IRS is strict—missing a date could mean losing tax benefits.
- Not Using a Qualified Intermediary: Handling funds yourself can disqualify the exchange.
- Improper Identification: Be precise when identifying replacement properties.
Want to Learn More?
Have questions or want to explore your options? The Trilogy Group team is here to help you strategize and make the most of your residential and commercial real estate investments.