There are several types of 1031 exchanges that can be used to defer capital gains taxes when selling real estate. In this article, we are going to discuss the similarities and differences between a forward 1031 exchange and a reverse 1031 exchange, and when to use each to your advantage.
Forward 1031 Exchange
A forward 1031 exchange is the most commonly used type of exchange under section 1031 of the Internal Revenue Code. In a standard forward exchange, you sell your relinquished property and, within the next 180 days, acquire your replacement property and reinvest all of your net proceeds. In the process, you defer your capital gains tax burden.
Reverse 1031 Exchange
A reverse 1031 exchange has the same end-goal of a forward 1031 exchange – capital gains tax deferral. The main difference between the two is the order in which things happen. Instead of first selling your relinquished property (as you would do in a forward exchange), a reverse exchange starts with the acquisition of your replacement property. It ends with the sale of your relinquished property.
The main benefit of a reverse exchange is that it allows you to nail down a replacement property quickly. This can be especially helpful in a hot seller’s market.
CPEC1031, LLC – Qualified Intermediaries with Over 20 Years of Experience
A 1031 exchange of investment or business real estate can help you save money in capital gains taxes. It also offers the added benefit of keeping your money compounding in a continuation of your investment over time. That’s why the 1031 exchange is a go-to tool for savvy investors. If you’re interested in learning more about the 1031 exchange process and how it can help you save money in capital gains taxes, contact the team at CPEC1031, LLC. Our team of qualified intermediaries has over twenty years of experience and can help you through all the details of your next 1031 exchange of real estate.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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