1031 tax free exchanges are a swap of one real estate investment property for another that allows capital gains taxes to be deferred. The term—1031 Exchange –gets its name from Section 1031 of the Internal Revenue Code (IRC).
IRC Section 1031 isn’t exactly straightforward. It has many moving parts that real estate investors must understand before attempting to use it. An exchange can only be made with like-kind properties and Internal Revenue Service (IRS) rules limit its use with vacation properties. There are also tax implications and time frames that may be problematic.
Here is what you should know:
A 1031 exchange can be used by savvy real estate investors as a tax-deferred strategy to build wealth. However, the many complex moving parts not only require understanding the rules, but also enlisting professional help—even for seasoned investors.
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