A 1031 exchange is a way to postpone taxes on the sale of one real estate for another. It applies to business or investment real estate. When used properly, it may result in dramatic savings. This article discusses the benefits of 1031 exchanges for tax deferment in MA.
Types of Real Estate that Qualify
You must possess a qualified property in order to consider a 1031 exchange. Qualified real estate are those used in a business/trade or for investment. They can be rental, land, residential, industrial, and commercial real estate. You must also intend to purchase new similar real estate that is also qualified.
Benefits Of 1031 Exchanges For Tax Deferment In MA
Typically, when you sell investment real estate, capital gains taxes apply to earnings from the sale. This applies regardless of what you plan to do with that money earned. Taxes can be levied by the federal and state government. Based on how many years you held a property and the amount of equity, the taxes levied may amount to a large sum of money. A 1031 exchange gives you a means to redirect the equity from one property towards purchasing a new like-kind property and postpone capital gains taxes until you sell that new property. Another 1031 exchange can be performed on that future property to defer taxes even further.
Thinking About a 1031 Exchange
There are many components to a 1031 exchange that you should understand BEFORE selling a qualified property. 1031 Exchanges can not be performed after a sale is complete. You must intend to complete an exchange when you list qualified real estate for sale. Very exact timelines must be followed to complete the exchange. This includes time frames for identifying and buying replacement property. A qualified intermediary must also be used to manage the exchange and funds. If a step or time frame is missed, all applicable tax savings will be void. Consult with a knowledgeable financial advisor for help with on 1031 exchanges and to enjoy the full benefits of 1031 exchanges for tax deferment in MA.