Advantages Of 1031 Tax Deferred Exchanges In Boston

A 1031 exchange is a method for deferring taxes when selling a property and purchasing another. Properties used for business or investment may qualify. When used properly, it can result in dramatic savings. This article details the advantages of 1031 tax deferred exchanges in Boston.

Qualified Property

You must possess a qualified property before considering a tax deferred 1031 exchange. Qualified properties are those used in a business/trade or for investment. It may include rental, land, residential, industrial, and commercial real estate. You must also expect to buy new similar property that is also qualified.

Advantages Of 1031 Tax Deferred Exchanges In Boston

Normally, when you sell investment real estate, you must pay capital gains taxes on the earnings from the sale. This applies despite what you intend to do with that money earned. Taxes may be levied by the federal and state government. Depending on how many years you owned a piece of real estate and how much equity you have in it, the taxes due may be quite large. A 1031 exchange gives you a means to divert the equity from one property towards the purchase of another like-kind property and postpone capital gains taxes until you sell that new property. Of course, another 1031 exchange can be possible on that future sale to delay taxes yet again.

Preparing for a 1031 Exchange

There are several components to a 1031 exchange that you must be aware of BEFORE selling a qualified property. 1031 Exchanges are not something that you can take advantage of after the fact. You must plan to use an exchange when you list qualified real estate for sale. Very exact timelines must be complied with to execute the exchange. This includes time frames for identifying and purchasing replacement property. A qualified intermediary must also be employed to manage the exchange and funds. If a step or deadline is missed, all tax savings will be forfeited. Speak with an experienced financial advisor for help with on 1031 exchanges and to enjoy the full advantages of 1031 tax deferred exchanges in Boston.