Mastering 1031 Exchanges: Key Considerations Before Diving into Real Estate Investment

This article will break down 1031 exchanges and provide you with all the information that you need to know before you choose to invest in using this strategy. 

A 1031 exchange is by far one of the best ways to invest in real estate because it enables you to essentially swap one property for another of the same value while avoiding having to pay capital gains taxes. 

This is a powerful way to invest in real estate that many long-time investors in the United States use to continue investing in real estate while deferring taxes but, it can be somewhat complicated to pull off and it can also include some advanced costs which you should be aware of. 

#1 – Establish your 1031 exchange team 

Since there can be some complications when you invest in real estate using a 1031 exchange, you should select a group of people to assist you before you make this real estate transaction. Your team should include a reputable 1031 exchange company, 

a tax advisor (if needed) and an escrow company because once you sell your property you will need to place those proceeds in escrow with them as an intermediary until you use that money to purchase replacement property of equal value. 

  #2 – Both properties must be “Like-Kind” and qualifying properties 

Another important thing to know before investing in real estate using a 1031 exchange is that both properties must meet the criteria of being “like kind” and they must be qualifying properties. 

For example: let’s say that you’re selling a rental property in Detroit, this means that you must purchase another rental property of equal value. You could not sell your rental property for vacant land because the vacant land would not be classified as a qualifying property or like kind. 

#3 – You have 180 days 

Besides following that “like kind” and qualifying property rules, it’s also important for you to know that any property that you purchase using a 1031 exchange must be purchased within 180 days after you sell your property. 

Sadly, as of October 2018, the IRS does not allow any extensions, so the 180-day rule is something that must be followed if you want to benefit from the 1031 exchange. 

Learn More 

Learn more about how to invest in real estate using a 1031 exchange, or to view investment properties in Detroit, contact Strategy Properties at (734) 224-5454 or connect us online strategyproperties.com