A 1031 exchange is a method for postponing taxes when selling one piece of real property and buying another. Properties used for business or investment can qualify, for most people, this will mean a house you rent out . When used properly, it may lead to significant savings. This blog discusses the benefits of 1031 tax deferred exchanges in San Jose CA.
Types of Properties that Qualify
You must have a qualified property in order to consider a 1031 exchange. Qualified real estate are ones involved with a business or for investment. They can be land, residential, rental, commercial, and industrial properties. You must also plan to purchase like-kind property that is also qualified.
Benefits Of 1031 Tax Deferred Exchanges In San Jose CA
Normally, when you sell an investment property, you must pay capital gains taxes on the proceeds from the sale. This applies regardless of what the money is used for afterwards. Taxes may be owed to the federal government and local state. Based on how many years you kept a piece of real estate and the amount of equity, the taxes due can be quite large – think 30% or so in California. A 1031 exchange enables you to put the equity from a property sale towards buying a new like-kind property and delay capital gains taxes until you sell that additional real estate. Of course, another 1031 exchange may be possible on that future property to defer taxes even longer.
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Considering a 1031 Exchange
There are many components to a 1031 exchange that you should know about beforeĀ listing a property for sale. 1031 Exchanges may not be initiated after a sale is complete. You shouldĀ plan to execute an exchange beforeĀ you list a qualified property for sale – and certainly, you must declare your intent to exchange before the sale closes. Certain timelines must be complied with to complete the exchange. This includes deadlines for narrowing down and buying replacement property. A qualified intermediary must also be hired to administer the funds. If a process is overlooked, all savings areĀ lost. Consult with a knowledgeable 1031 exchange consultant for more on 1031 exchanges and to enjoy the benefits of 1031 tax deferred exchanges in San Jose CA.
