Regardless of the purchase time, if you’ve been thinking the time is right to sell your property, you may want to hesitate a moment before listing it.
Here we’ll take a look at the basics you should know before you go selling your property, so as to ensure you maximize your profits.
Investment Real Estate Has Become Quite the Trend
If you own an investment real estate property, you are in fact part of a new trend that seems to be growing in popularity over the last couple of years. You may have even come across the popular term of a 1031 exchange property, which is when you actually swap out that real estate property for another one. This term of a “1031” actually refers to section 1031 in the federal tax code, and isn’t limited to real estate alone.
When discussing a 1031 in terms of a property, though, it allows a person to swap properties with either very small amounts of tax due or no tax. Obviously, from an investment standpoint this is ideal. Many experts in the field have gone so far as to call it the most “powerful wealth building tool” that is available to taxpayers today. You can sell that original investment, then take your profits and invest in another investment property without having to pay that dreaded capital gains tax.
Of course, there is always a catch, right? And just as you would expect there are rules that are applied to a 1031 exchange property.
Top Rules to Be Aware Of
The very best advice when dealing with a 1031 exchange property is to seek the advice of a professional. This is really the only way to be sure you’re not breaking any rules, and that you go about the process properly. There are also services out there that help you find your next property, such as 1031 Gateway. This again helps to ensure you exchange your current property for something new that still makes sense for your portfolio.
Here are the top rules to keep in mind:
- Only certain properties qualify as an exchange property. These include a shopping center in exchange for land, an office in exchange for a shopping center, a single family rental in exchange for a tenants in common (TIC) property, an apartment building in exchange for an industrial building, and land that is in exchange for an industrial building.
- A 1031 can’t be used on personal residences (see above).
- There is the possibility to do a delayed exchanged. This refers to a deal that features a middleman who is responsible for holding the cash during the time you get rid of the original property and exchange for the new one.
These are just a few of the rules to be aware of, as there are many others. These rules are exactly what a professional can help you work through. A property exchange can prove to be extremely fruitful as long as it’s done correctly.