Swap Your Way to Greater Riches with a 1031 Property Exchange

couple talking to a real estate agent

Taking part in a 1031 property exchange is an incredible way to grow your foothold in the commercial real estate sector. Instead of paying capital gains to the government, you get to use it to build your wealth. Investors keen to thrive and succeed in the commercial real estate scene are busy scooping up 1031 properties in Nevada. Such people have come to realize the endless benefits that come with taking part in the government-sanctioned property exchange. Should you take part in such a property swap, you get a free pass on the tax gain tax. Instead, you get to defer the tax indefinitely without running afoul of the law. While the process happens under the watchful eye of the Internal Revenue Service (IRS), you can breeze through it to gobble up all advantages.

Keep it short

Once IRS gives you the go-ahead to engage in a swap, you have exactly 180 calendar days to complete the process. Failing to pay heed to these timelines nullifies the exchange, and it reverts to a regular sale. That means that you become ineligible for the tax breaks and that you have to pay capital gains to the government.

To start with, you have 45 calendar days to identify up to three replacement properties. This usually entails contacting property owners and securing their willingness to sell the property to you. After that, you have the remaining 135 calendar days to sell your property and close the deal on the replacement property or properties.

During the exchange, you have the option of buying one property or several properties. The value of the property is the only restricting factor when getting the like-kind property. The replacement property must be of equal or higher value as your original property. You have the latitude of buying a property that worth twice as much as your old property.

Spend it all

Another hard requirement when taking part in a property exchange is that you need to plough back all sales proceeds. This might seem like a great drawback, but the resulting benefits more than make up for it. Some people make the mistake of thinking that you need to spend the capital gains only for IRS to send them a tax bill later on.

If you have any money left over at the end of the exchange process, also known as taking boot, you’re liable for capital gains tax. IRS treats the leftover amount as gains, and they are out to get their pound of flesh. Balancing out the sales proceeds and the purchase price is the only way to escape the taxman.

Get expert help

couple talking to a land advisorDespite your expertise and prowess in the field of property acquisition and law, you can’t handle your own 1031 property exchange. One of the hard requirements of the swap is that you don’t touch a penny of the sales proceeds. Instead, all the money needs to be deposited with a qualified intermediary who will then pay the seller of the replacement property. If the money hits your account at any time during the process, you forfeit the tax advantage. Hiring an intermediary is a hard requirement as well. Taking part in a 1031 property exchange is an incredible way to grow your portfolio in the commercial real estate. It comes laden with significant advantages that include deferring all taxes on capital gains. You only need to follow the stipulations outlined by IRS, and you’re on your way to building your wealth.