A 1031 exchange is a way to postpone taxes on the sale of one real estate for another. It applies to properties used for business or investment purposes. When executed properly, it can lead to significant savings. This article discusses the benefits of tax deferred 1031 exchanges in Newburyport MA.
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 include rental, land, residential, industrial, and commercial real estate. You must also expect to buy new like-kind property that is also qualified.
Benefits Of Tax Deferred 1031 Exchanges In Newburyport MA
Usually, when you sell investment property, capital gains taxes are due on earnings from the sale. This applies despite what the funds are used for afterwards. Taxes can be owed to the federal and state government. Based on how long you held a piece of real estate and the amount of equity, the taxes owed may be quite large. A 1031 exchange allows you to redirect the equity from a property sale directly into purchasing a new like-kind property and defer capital gains taxes until you sell that new property. Of course, another 1031 exchange may be an option on that future sale to delay taxes again.
Thinking About a 1031 Exchange
There are several components to a 1031 exchange that you should be aware of BEFORE selling a qualified property. 1031 Exchanges are not something that you can start after a sale is complete. You must intend to use an exchange when you list qualified real estate for sale. Very exact timelines must be followed to complete the exchange. This includes deadlines for finding and closing on replacement property. A qualified intermediary must also be employed to facilitate the exchange and funds. If a step or deadline is missed, all potential tax savings will be lost. Consult with an experienced financial advisor for help with on 1031 exchanges and to reap the full benefits of tax deferred 1031 exchanges in Newburyport MA.