A 1031 exchange is a way to defer taxes when selling one property and purchasing another. Properties used for business or investment can qualify. When executed properly, it may result in significant savings. This blog discusses the benefits of tax deferred 1031 exchanges in Bennington.
Types of Real Estate that Qualify
You must possess qualified real estate in order to consider a 1031 exchange. Qualified real estate are those used in a business/trade or for investment. It may be rental, land, residential, industrial, and commercial real estate. You must also expect to buy new like-kind real estate that is also qualified.
Benefits Of Tax Deferred 1031 Exchanges In Bennington
Normally, when you sell an investment property, you must pay capital gains taxes on the earnings from the sale. This is true regardless of what the funds are used for afterwards. Taxes may be levied by the federal government and local state. Depending on how long you owned a property and how much equity you have in it, the taxes due can amount to a large sum of money. A 1031 exchange gives you a means to divert the earnings from one property directly into the purchase of another like-kind property and postpone capital gains taxes until you sell that new property. Of course, another 1031 exchange may be performed on that future sale to postpone taxes yet again.
Preparing for a 1031 Exchange
There are many components to a 1031 exchange that you must be aware of BEFORE selling a qualified property. 1031 Exchanges may not be performed after a sale is complete. You must intend to perform an exchange when you list a qualified property for sale. Very exact timelines must be followed to execute the exchange. This includes deadlines for selecting and closing on replacement property. A qualified intermediary must also be employed to manage the exchange and funds. If a step or deadline is missed, all tax savings will be lost. Speak with an experienced financial advisor for help with on 1031 exchanges and to reap the full benefits of tax deferred 1031 exchanges in Bennington.