What’s a 1031 exchange? A 1031 allows a real estate investor to exchange one investment property for another while deferring the income taxes owed. Let’s say I own a condo I’ve rented out for 5 years, then I sell it resulting in a $100,000 gain. If I don’t buy another investment property, I pay taxes on the $100,000. But if I use the proceeds to buy a rental home, I don’t have to pay the taxes on the $100,000 gain from the condo until I sell the rent home. In essence, I’m deferring the taxes owed until a later time. I’m not avoiding paying the taxes, I’m deferring it. You can exchange any kind of real property for another. Sell a condo and buy vacant land. Sell a strip mall and buy seven rent houses. It just has to be real estate for real estate. Also, there are very strict rules and timelines to follow. If you violate those rules, then you can’t use it. Obviously, there more to it, so if you want to learn more, reach out to me.
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