Real estate transactions are far more complex than simply transferring property from a seller to a buyer. While many actual people are involved in a successful real estate transaction like attorneys, real estate agents and buyers and sellers, taxes are another important component in the process that shouldn't be forgotten. As a seller, any money received during the sale of your property above and beyond what you originally paid for it is assessed a tax that you must pay.
But what about if you want to exchange one piece of property for another within a specific time period? The federal government offers an option to defer paying taxes in just such an instance. This is what is known as a 1031 exchange, or a tax deferred exchange.
If you're considering selling your home and subsequently purchasing another home within a specific time period, a 1031 exchange is a simple means to do just that. In order to be qualified, the Internal Revenue Service, or IRS, sets certain guidelines that must first be met by both pieces of property.
The convenience of the 1031 exchange is that the procedure to sell your property and purchase another is virtually identical to that of a typical real estate transaction. What makes the 1031 exchange unique is, as its name implies, it is treated as an exchange instead of a regular sale. What this means is that a taxpayer can consequently qualify for a deferred gain treatment under federal tax laws. To put it another way, home sales are considered taxable by the IRS while 1031 exchanges simply aren't.
Savvy homeowners can consequently save money by using a 1031 exchange when they want to sell their current home and quickly purchase another. It is important to note that time constraints must be met in order for the "exchange" to qualify under the 1031 IRS tax code. To qualify, the IRS additionally has stipulated that the subsequent home purchase must be of "like kind" to the original property owned by the homeowner and also be purchased for productive use. You should consult a tax specialist to ultimately have all of the specifics explained.
But what about if you want to exchange one piece of property for another within a specific time period? The federal government offers an option to defer paying taxes in just such an instance. This is what is known as a 1031 exchange, or a tax deferred exchange.
If you're considering selling your home and subsequently purchasing another home within a specific time period, a 1031 exchange is a simple means to do just that. In order to be qualified, the Internal Revenue Service, or IRS, sets certain guidelines that must first be met by both pieces of property.
The convenience of the 1031 exchange is that the procedure to sell your property and purchase another is virtually identical to that of a typical real estate transaction. What makes the 1031 exchange unique is, as its name implies, it is treated as an exchange instead of a regular sale. What this means is that a taxpayer can consequently qualify for a deferred gain treatment under federal tax laws. To put it another way, home sales are considered taxable by the IRS while 1031 exchanges simply aren't.
Savvy homeowners can consequently save money by using a 1031 exchange when they want to sell their current home and quickly purchase another. It is important to note that time constraints must be met in order for the "exchange" to qualify under the 1031 IRS tax code. To qualify, the IRS additionally has stipulated that the subsequent home purchase must be of "like kind" to the original property owned by the homeowner and also be purchased for productive use. You should consult a tax specialist to ultimately have all of the specifics explained.
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