A 1031 exchange is a method for deferring taxes when selling one property and purchasing another. It applies to real estate used for business or investment purposes. When executed properly, it may result in dramatic savings. This blog details the benefits of 1031 exchanges in Virginia.
Types of Properties that Qualify
You must own a qualified property in order to consider a 1031 tax deferred exchange. Qualified properties are those used in a business or for investment purposes. They may be rental, land, residential, industrial, and commercial real estate. You must also purchase new like-kind real estate that also meets the qualification criteria.
Benefits Of 1031 Exchanges In Virginia
Usually, when you sell an investment property, capital gains taxes apply to earnings from the sale. This is true despite what you intend to do with that funds. Taxes can be owed to the federal and state government. Based on how many years you held a piece of real estate and the amount of equity, the taxes levied can be quite large. A 1031 exchange enables you to put the equity from one property towards the purchase of another similar property and defer capital gains taxes until you sell that new real estate. Of course, another 1031 exchange can be possible on that future sale to postpone taxes yet again.
Preparing for a 1031 Exchange
There are several elements to a 1031 exchange that you must be aware of prior to marketing aproperty. 1031 Exchanges are not something that you can complete after the fact. You must intend to execute an exchange when selling. Particular timelines must be complied with to conform to the exchange. This includes time frames for identifying and purchasing a replacement. A qualified intermediary must also be hired to manage the exchange and funds. If a deadline is skipped, all savings will be void. Consult with an experienced 1031 exchange consultant for help with 1031 exchanges and to enjoy the benefits of 1031 exchanges in Virginia.