Facts You Should Know

Maximizing Your Wealth by Utilizing a 1031 Tax Deferred Exchange

A tax-deferred 1031 Exchange, also known as a Like Kind Exchange or a Starker Exchange, is a federal tax law that allows you to put off to a future time payment of Capital Gain Tax. If you buy new property with the profit from the sale of a piece of investment property (which can be a primary residence) you will not owe taxes on it at that time under the rules of a 1031 Exchange.

If and when you sell the new property, you will then owe taxes on it, but you can simply utilize the Exchange once again. In both instances there is a stipulation that the properties be of “like kind,” meaning you cannot simply pocket the profits from a sale after buying a lesser expensive property. The property will no longer be treated as “like kind” if it is received more than 180 days after the transfer of the property you are selling.

When handled properly, tax-deferred exchanges are an excellent way to maximize your wealth by reducing your tax expenditures. Of course all information provided in this article is subject to change by the Internal Revenue Service, so make sure you seek the advice of a qualified professional such as an accountant or attorney when planning your tax-deferred exchange strategy.