The biggest draw of a 1031 exchange is the potential of deferring your capital gains tax burden when selling investment or business real estate. But many people don’t know how the capital gains tax deferral process works. In this article, we outline the process of deferring capital gains taxes with a forward 1031 exchange of real estate.
Step 1: Selling Your Relinquished Property
Before we dive in, we should note that these are the typical steps of a forward 1031 exchange. Other types of exchanges (reverse, build-to-suit) work a little differently.
In a forward exchange, the first step in the process is the sale of your relinquished property. Once you sell your relinquished property, your 1031 exchange clock starts ticking. You have a total of 180 days to complete your like-kind exchange.
Step 2: Identifying Your Replacement Property
The next step in the process is to provide written identification of your replacement property within 45 days. If you don’t identify a property during this period, you will not be able to exchange into it.
Step 3: Acquiring Your Replacement Property
By the 180th day of your exchange period, you must acquire your identified replacement property. If all goes smoothly, you will then be able to defer your capital gains taxes on the sales proceeds.
Start Deferring Your Capital Gains Taxes Today
Start deferring your capital gains tax burden today by conducting a 1031 exchange of your investment real estate. The 1031 exchange can be utilized by investors big and small to defer capital gains taxes on the sale of real property held for business or investment use. For more information on section 1031 of the Internal Revenue Code and to see if your property qualifies, contact the team at CPEC1031, LLC. Our qualified intermediaries have more than twenty years of experience working with taxpayers across the United States on their 1031 exchanges. Let us help you through the 1031 exchange process.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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