If you are a real estate investor, the chances are that you
are aware of the role of Section 1031 for saving taxes. It lets you defer
capital gains tax on real estate transactions. To enjoy the benefits of this Section,
you have to comply with regulations as implemented by IRS.
Through this blog post, we discuss some rules of Section
1031 you must know as an investor.
No exceptions for the
deadlines
If you are unable to complete the transaction as per the
time frame, you are supposed to pay the tax on capital gain. For example, if
you fail to close the purchase within 180 days, you can’t enjoy the benefits of
Section 1031.
45 days to identify
purchases
After selling your property, you get 45 days for identifying
potential purchases. You are allowed to identify three properties in this
period, provided you buy one of them.
Transaction must be
qualified
This means the property you are selling must have been used
for investment purposes. You have to
hold the property for passive income.
Properties should not
be held by different owners
The 1031 exchange is applicable only if the same owner sells
the replacement property and buys the relinquished property. If you purchase
the property through an LLC and sell one using a personal name, the exchange
will be invalid.
If you are a real estate investor from Massachusetts, you
can defer capital gains tax by taking the support of FAI Exchange. This firm
helps you in DST investments, which can act as replacement properties in
exchange.
Read more about the services of FAI Exchange here.
