Many people think that a 1031 exchange is “tax free.” This is not true. What a 1031 exchange offers is tax deferral. But what exactly does that mean? In this article, we are going to talk about the difference between tax free and tax deferred when it comes to a 1031 exchange.
Is a 1031 Exchange Tax Free?
To the question at hand – is a 1031 exchange completely tax free? No. 1031 exchanges are not tax free in the sense that you never have to pay taxes on the capital gains from your sale. Instead, 1031 exchanges allow you to defer your capital gains taxes on the sale of real property. There is an important distinction we need to make here between the terms “tax free” and “tax deferred.” Tax free implies that you never have to pay taxes. That does not describe a 1031 exchange. Tax deferral implies that you are still responsible for the taxes in question, but aren’t responsible for paying them until some point in the future.
Deferring Taxes Indefinitely
Although a 1031 exchange is not tax free, with a good strategy and enough foresight, you can potentially defer your taxes indefinitely by continually exchanging into new replacement property over time.
MN 1031 Exchange
Contact a 1031 exchange qualified intermediary today to learn how to defer your capital gains taxes on the sale of real estate or personal property. At Commercial Partners Exchange Company, our qualified intermediaries have decades of experience facilitating exchanges of all shapes and sizes. Contact our team of qualified intermediaries today to set up an appointment over the phone or in person at our downtown Minneapolis office.
- 1031 Hotline: If you have questions about 1031 exchange tax deferral, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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