Selling real estate can turn a large profit, but it also comes with a large tax bill.
That’s where a 1031 exchange comes in handy: by offering you a deferred tax break.
But 1031 exchanges are complicated and have strict requirements, which means they’re not for everyone.
It’s not something you should attempt to tackle on your own.
A straightforward 1031 won’t produce any income or give your bank account an injection of cash.
“You must reinvest all the proceeds to defer paying tax on all the gain,” said Collado.
“In other words, you’ve got the option to’t just reinvest the gain.”
When can you use a 1031 exchange?
Let’s say you own a beach house that you regularly rent out and earn consistent income from.
This is because the property won’t be classified as an investment or business property.
What factors should you consider?
Otherwise, you won’t qualify for this exchange.
That means you could end up underselling your first property, overpaying for the second or both.
“The QI is basically just a custodian that will hold your funds when the real estate transaction closes.
“Don’t trip over pennies on the way to dollars,” said Chancey.
“If you need a good real estate or tax attorney, get one.”
Plus, one of the relevant financial professionals you work with can often act as your QI.
You should always hire professionals to support you throughout the process.
