Most real estate investors have heard about the mythical like-kind exchange. This tax strategy is where you buy a new investment property to replace the old one, and you don’t have to pay tax on the sale of your old property. What most investors don’t know is that there is a way to use like-kind exchanges to avoid tax on your real estate portfolio completely and still have the use of the cash and appreciation of your investment. A like-kind exchange is also called a 1031 exchange after the Internal Revenue Code section that allows for the tax-deferred treatment of the exchange. Originally, it was thought that you would have to find someone who wanted your property and do a direct exchange with them of your property for their property, but that’s no longer the case. Now, you can sell your property on the open market and then buy any property you want. Of course, there are a few rules you must follow. Here they are: Equal or up You must purchase a property that is the sa...
- To capitalize on like-kind exchanges, you must ID the new properties within 45 days of selling and close on the new property in 180 days.
- A qualified intermediary and tax adviser can assure your transaction qualifies for tax-deferment.
- With the right counsel and advisers on your side, you never have to pay tax on your real estate gains.
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