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.