Buying a 1031 Exchange Property

The world of Commercial Real Estate can be a very rewarding experience to people, or a ball of confusion for others. What often creates this divide is the little nuances of the trade that come into play when trying to sell or purchase property. This can become quite evident when analyzing the paperwork that has to be filled for completed transactions. This can involve technicalities of property boundaries, terms for repair on a building, or taxes that need to be paid off after the sale is completed. There are some ways to get around these regulations and taxes however, such as a 1031 Exchange. Having this knowledge can allow an investor to maximize their returns, and in turn, is why they should always hire a broker to work with them on deals.

What exactly is a 1031 Exchange?

A 1031 Exchange is a strategy that grants an investor or buyer the opportunity to defer paying Capital Gains taxes, as long as that money is used to purchase a similar property. By allowing themselves to reinvest their gains, they can, in turn, diversify their portfolio with new additions, and leave the IRS out of investments. Having a knowledgeable broker on your team can assist with this and make sure the whole process is taken care of properly.

There are few technicalities that have to abide by however for the gains to be deferred and be considered a legitimate 1031 Exchange. The first step was mentioned briefly, but it is required that the two properties have to be considered similar property. In other words, an office building could be traded for a new office building but could not be sold to have that money reinvested in a retail outlet center.  Another stipulation is that it has to be used for commercial use, and cannot be used as a tool for personal property.

One more big rule for a 1031 Exchange is that the new property must be equal to or greater in value to the property sold in order to not pay taxes.

There are multiple others requirements needed aside from the two caveats mentioned earlier, again reflecting the added value of having a broker assists with these deals. All of the requirements need to be met in order to avoid paying Capital Gains Taxes, so having someone on your team that is knowledgeable about the situation can provide immense value.

Aside from the following the rules of a 1031 Exchange, finding the right replacement property can be challenging.  When dealing with net lease investments alone, there are often 3,500 properties on the market at any given time.  It takes a vast network to fully understand what’s on the market, which properties will make the best investments, and how to quickly go about getting them onto your identification forms (another rule to be followed is the 45-day identification period).  Calkain specializes in doing this for our clients.  We work with a team of professionals to walk clients through every step of the process and have a track record with proven results.

If you have questions regarding a potential 1031 Exchange please reach out to Calkain Companies, America’s Net Lease Company®, for proven professional advice. Navigating the nuances of these deals can be a tedious or intimidating task, and in turn, professional advice could be of immense value.

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