What does a 1031 exchange mean in real estate?
A 1031 exchange is a real estate investing tool that allows investors to swap out an investment property for another and defer capital gains or losses or capital gains tax that you otherwise would have to pay at the time of sale.
Can you ever live in a 1031 exchange property?
While you can’t do a 1031 exchange directly into a personal residence — exchanges are limited to real property that is held strictly for investment or business purposes — you can convert an investment property into personal property so long as you follow the IRS’ rules to the letter.
What are the rules for 1031 exchange?
The main requirements for a 1031 exchange are: (1) must purchase another “like-kind” investment property; (2) replacement property must be of equal or greater value; (3) must invest all of the proceeds from the sale (cannot receive any “boot”); (4) must be the same title holder and taxpayer; (5) must identify new …
What does a 1031 exchange mean for a buyer?
A 1031 exchange allows you to sell one investment or business property and buy another without incurring capital gains taxes – as long as the exchange is completed according to IRS rules and the new property is of the same nature or character (like kind).
What is a 1031 exchange on an investment property?
This section allows for the seller of an investment property to defer paying capital gains by using the proceeds from that property to buy a replacement investment property. What are the benefits of doing a 1031 exchange? As an investor, there are some reasons why you may consider using a 1031 exchange.
Can a 1031 be used for a vacation home?
The 1031 provision is for investment and business property, although the rules can apply to a former primary residence under certain conditions. There are also ways you can use 1031 for swapping vacation homes—more on that later—but this loophole is much narrower than it used to be.
What is a 1031 tax form?
The term—which gets its name from the Internal Revenue Service (IRS) code Section 1031 ,—is bandied about by realtors, title companies, investors, and soccer moms. Some people even insist on making it into a verb, as in: “Let’s 1031 that building for another.”
What is the difference between a 1031 and 121 exclusion?
The Section 121 exclusion isn’t a tax deferment method like a 1031, however. Instead, it is used for gains exclusion on your primary residence when you decide to sell. Single filers can exclude up to $250,000 of gains on the income from the sale of their primary residence.