A 1031 exchange is a way to postpone taxes when selling a property and buying another. It applies to real estate used for business or investment purposes. When executed properly, it may result in significant savings. This article provides the benefits of 1031 tax deferred exchanges in MA.
Qualified Real Estate
You must own qualified real estate before considering a tax deferred 1031 exchange. Qualified properties are ones involved with a business or for investment purposes. It can be land, residential, rental, commercial, and industrial properties. You must also expect to buy similar real estate that is also qualified.
Benefits Of 1031 Tax Deferred Exchanges In MA
Usually, when you sell an investment property, you must pay capital gains taxes on the profits from the sale. This is true regardless of what the funds are used for afterwards. Taxes may be levied by the federal and state government. Based on how many years you owned a property and how much equity you have in it, the taxes due may result in a large sum. A 1031 exchange gives you a means to put the earnings from one property directly into purchasing another like-kind property and delay capital gains taxes until you sell that additional property. Actually, a 1031 exchange may be an option on that future sale to defer taxes again.
Preparing for a 1031 Exchange
There are different components to a 1031 exchange that you should understand BEFORE selling a property. 1031 Exchanges are not something that you can take advantage of after the fact. You must plan to complete an exchange when selling. Particular steps must be completed to complete the exchange. This includes time frames for selecting and buying a replacement. A qualified intermediary must also be used to administer the process. If a step is skipped, all applicable tax savings will be lost. Consult with a knowledgeable 1031 exchange consultant for more on 1031 exchanges and to enjoy the full benefits of 1031 tax deferred exchanges in MA.