What is a 1031 Exchange?

Emerging ways to earn and invest profits in the real estate industry are helping some investors to stay ahead of the stock market. A section of the federal tax code does allow some properties to be free or almost free of taxation when certain conditions are met. Knowing what is a 1031 exchange as an investor could create new ways of buying and holding property to reap available tax rewards. The following video explains more about a 1031 in the real estate investment industry.

1031 Exchange History 

A rise in court decisions and cases in the early 1950s caused changes to be made to the then current tax codes. The Internal Revenue Code was updated to reference a like-kind exchange or tax deferral for qualifying transactions between property owners.

The final changes were integrated into the federal code in the early 1990s although there are strict IRS rules for investors to follow.

Investors Often Prefer a 1031

The sole purpose of a 1031 is the deferring of any federal taxes that might be due upon sale of a real estate property. The payment of capital gains taxes is standard in most cases although when certain conditions are recognized no taxes are payable. There is also no limits placed on the amount of exchanges that can be conducted by one person. Investors who know the rules of the exchange can often benefit from this type of transaction compared with a normal sale.

Like-Kind Property Exchanges

When an investor is not ready to sell a property, an exchange could be made between two owners. This like-kind method is popular in commercial and residential real estate used as an investment. Duplexes, rental properties and condos can often be granted a like-kind exchange if the homes are not considered a primary residence. 

A 1031: Earning More as an Investor 

The goal of investors who are successful is usually hanging on to more of the profits from a property sale. JWB has pioneered a program to help owners of homes throughout the U.S. who are interested in buying rental homes when qualifying for a 1031. The downloadable property guide on this page offers a lot of good information to beginners or advanced investors who are considering tax benefits of exchanges this year.

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