1031 Exchanges – Tax Deferral Strategies
Real estate companies are generally on the lookout for new commercial, industrial or residential real estate investment opportunities that will expand their presence and market offerings and ultimately drive profit. While pursuing opportunities, some elect to sell existing properties to realign holdings. When negotiating the sale, most are focused on the financial and operational details of the transaction but pay far less attention to things like tax consequences, which can result in more taxes being paid than is necessary. Effective tax planning reduces the amount of tax owed and leaves the seller with a greater share of profit. One important real estate tax planning strategy owners should consider using is a 1031 like-kind exchange.
What is a 1031 Exchange?
A 1031 exchange is a tax deferral method that allows a real estate owner to exchange one business or investment property for another without recognizing a gain or loss. In other words, the exchange allows the real estate owner to exchange properties while deferring taxes due into the future.
Transaction Structuring
Buying and selling real estate is often a complex process with many variables that need to be considered. However, when leveraging a 1031 exchange, the complexity increases. There are strict IRS regulations that must be followed in an exchange, including a specific timeframe for new property identification and closing, the required use of an intermediary to hold proceeds from the sale, and a minimum holding time before the property can be sold. For this reason, it’s necessary to work with an experienced advisor to navigate the process.
Take the Next Step
Learn why real estate companies and investors across California turn to JLK Rosenberger for assistance with real estate tax planning, including 1031 exchanges. If you have questions about the exchange process or need help with other planning issues, click here to contact us or reach out to a highlighted professional on the right.
