1031 exchanges can save you a lot of money in capital gains taxes when you sell a piece of property. Here are three tips for deferring taxes with a 1031 exchange.
The first tip is to get your 1031 exchange set up with a qualified intermediary well before you close on the relinquished property. Sadly, we often receive calls from folks that have already closed on the sale of their relinquished property, received the proceeds, and then decided they wanted to do a like-kind exchange. The horse is out of the barn if you don't get your 1031 exchange set up in advance of the sale.
Think Like a Chess Player
The next tip is to think like a chess player - two to three moves ahead at any time. You want to be thinking about “where am I going to land for a replacement property?” Real estate is kind of like a game of musical chairs. If you don't act quickly you may find that you don't have a chair to land on when the music stops. You want to be thinking ahead and locking up a replacement property before you have to identify during the 45-day identification period. Ideally it would be nice to lock up a replacement property even before you close on the sale of your old relinquished property.
Work with Your Team of Professionals
The third tip is to work with your team of professionals. Bring your whole brain trust together. Involve your accountant, your lawyer, your real estate professional, and your financial planner in this process. This may be one of the most important financial decisions that you ever make and by using your resources you can get the best advice and information.
- 1031 Hotline: If you have questions about the best way to approach your 1031 exchange, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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