A 1031 exchange is a way to defer taxes on the sale of one property by purchasing another. It applies to real estate used for business or investment purposes. When used properly, it may lead to dramatic savings. This article details the advantages of 1031 exchanges in Massachusetts.
Qualified Real Estate
You must own a qualified property in order to consider a 1031 tax deferred exchange. Qualified properties are ones used in a business/trade or for investment. It may be rental, land, residential, industrial, and commercial real estate. You must also intend to buy similar real estate that is also qualified.
Advantages Of 1031 Exchanges In Massachusetts
Normally, when you sell investment real estate, you must pay capital gains taxes on the proceeds from the sale. This applies regardless of what you intend to do with that funds. Taxes can be owed to the federal government and local state. Depending on how long you owned a property and the amount of equity, the taxes due can result in a large sum of money. A 1031 exchange gives you a means to put the equity from a real estate sale directly into the purchase of another like-kind property and postpone capital gains taxes until you sell that new property. Another 1031 exchange could be performed on that future sale to defer taxes even further.
Considering a 1031 Exchange
There are many components to a 1031 exchange that you must understand BEFORE selling a qualified property. 1031 Exchanges can not be performed after a sale is complete. You must intend to complete an exchange when you list qualified real estate for sale. Very specific guidelines must be adhered to to complete the exchange. This includes deadlines for finding and purchasing replacement property. A qualified intermediary must also be used to facilitate the exchange and funds. If a step or deadline is missed, all tax savings will be forfeited. Speak with an experienced 1031 exchange consultant for help with on 1031 exchanges and to enjoy the full advantages of 1031 exchanges in Massachusetts.