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In a nutshell, the 1031 Exchange allows a property investor to sell one or
more properties and use the proceeds to buy different property without paying
capital gains tax on the initial sale. So the investor who purchased a San
Diego beachfront condominium for $500,000 three years ago can now sell it for
$900,000 without paying capital gains tax on the $400,000 gain. Instead
the entire $400,000 is used as a downpayment on a new home that is valued at
more than $900,000. The mechanism is a great way to switch between
property types - i.e. condominium to single family home, or single family home
to apartment building.
The timing of the 1031 Exchange is simple. When your property is sold
(close of escrow), the proceeds from the sale of the property are held to
purchase a replacement property. The replacement property must be
identified within 45 days after the sale. The purchase of the replacement
property must be formally completed within 180 days after the original property
was sold.
Some investors prefer to find a replacement property before selling their
current real estate holding(s). The Reverse 1031 Exchange allows the
investor to purchase the replacement property first, then sell. For
example, the person who purchased the house in Del Mar for $750,000 thinks the
house is now worth $1,750,000. An oceanfront duplex becomes available for
$2,500,000. The investor may buy the oceanfront duplex. Within 45
days after the purchase the investor must put the Del Mar house up for
sale. The Del Mar house must be formally sold within 180 days after the
oceanfront duplex was purchased.
The 1031 Exchange rules are very strict with timing. This is a San
Diego real estate guide. We recommend that you consult a tax professional
to determine how the tax laws will apply to your situation. There
are restrictions involving sale of property to related entities, family members,
and partnerships. Some types of sales may be disqualified.
These rules don't apply to the sale of a home or personal residence. Your
San Diego real estate professionals will answer questions and provide
references to service providers who will be critical to completing the 1031
Exchange.
Your personal real estate
consultant will guide you through the home selling process to make sure that
you maximize your real estate investment.
Other resources are available at:
IRS
Real Estate Tax Tips For 1031 Exchanges
National
Association Of Realtors Field Guide To 1031 Exchanges
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these San Diego real estate resources:
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