Sellers: Real Property Transactions
The type of exchanges that best suits your needs will determine your investment strategy and the nature of the transaction.
Most investors are not aware that taxation on a personal residence is not the same as taxation on an income or investment property. Under Internal Revenue Code 121, a homeowner may upon the sale of a principle residence exclude up to $250,000 of capital gains if single, and $500,000 if married, provided they have owned and occupied the property two of the previous five years.
You are probably aware that if an investor sells property, they pay tax. But these taxes are paid on capital gain, not on equity or profit. Property that qualifies for preferential treatment under Internal Revenue Code (insert special character) 1031 though is treated differently: "No gain or loss shall be recognized if property held for productive use in trade or business or for investment purposes is exchanged solely for property of a like-kind."
There are benefits of exchanging that include using leverage to maximize your investment dollars and property diversification to allow you a wide range of investment freedom. 1031 Tax Deferral can be merely a simple swap of two properties to a more complex multi-property transaction. Which type of exchanges best suits your needs will determine your investment strategy and the nature of the transaction.
Proper use of the tax deferred sale IRC 1031 allows you to sell rental property or land, acquire new real estate of any type and not pay one dime in capital gain taxes. You need to become one of the thousands of investors who are profiting every day through 1031 exchange.
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