Many of our clients ask why they should take advantage of a 1031 exchange investment. One of the most popular reasons why people invest in real estate are because of the tax benefits and 1031 exchange investments can offer exceptional value on your investment. Instead of spending your money and paying the government, you use your money to earn more money.
What Is an Exchange Investment?
When you sell property and make a profit, the Internal Revenue Service (IRS) requires you to pay a capital gains tax on the profit you made from the sale. However, there is a provision in the U.S. tax code, IRC Section 1031, which allows you to postpone paying those capital gain taxes if you take the profits you earned from selling that piece of property and reinvest them by purchasing a similar investment property. A 1031 exchange investment is named after this IRS rule.
In order to qualify as a 1031 exchange investment, the property you sell and the property you purchase must be for either business or investment purposes. Real estate that is purchased for personal use – such as your primary residence or vacation homes – do not qualify for a 1031 exchange investment. Under the IRS rules, the property must also be “like-kind,” meaning the two properties must be the same character, class, or nature.
However, the rules do allow you to exchange one type of investment property for another. For example, if you sell a rental house, you do not necessarily need to purchase another rental house. Instead of a house, your second purchase may be an office building that you will rent to a business.
Who Qualifies for a 1031 Exchange Investment?
Under IRS rules, the following entities may set up a 1031 exchange investment:
- General or limited partnerships;
- Limited liability companies;
- C corporations;
- S corporations; and
- Other taxpaying entities
Time Constraints on 1031 Exchange Investments
In order to take advantage of this investment opportunity, you must identify the replacement property within 45 days of the sale of the first property. This identification must be in writing and delivered to the party selling the property, their representative, or an intermediary. When Calkain is overseeing your 1031 exchange investment, we can act as a qualified intermediary to the identification.
The final sale must take place within 180 days of the sale of the first property, or before the due date of your tax return for the tax year the sale of the first property took place – whichever comes first.
Call Calkain Today
With more than a decade of commercial real estate experience, Calkain has gained a solid reputation for helping clients expand their investment real estate portfolios. Calkain’s corporate headquarters are in Virginia with additional offices in Boston, Florida, and Georgia. Our strategically located offices allow us to find real estate solutions for clients nationwide. In addition to assisting clients with 1031 exchange investments, Calkain also can help you with net lease investments, asset management, research, advisory, and capital markets.
Contact Calkain today to find out how a 1031 exchange investment can help your money earn money.1031 Exchange Investment