Secrets of the 1031 Exchange
My guest David Foster from ERG1031 gives us the details about how to use this section of the tax code to defer tax liability.
- What is a 1031 Exchange?
- A 1031 exchange refers to the section of the tax code that allows you to sell a property and roll up the profits into a “like-kind” exchange and defer the tax liability until a further date.
- What’s the benefit of a 1031?
- You can literally save millions of dollars in taxes over a real estate investing career.
- How do you start a 1031?
- You need to find an qualified intermediary (3rd party) to document the transaction.
- Starts with the sale of a property
- Intermediary has to be in place
- Client must produce a list of potential replacement properties with in 45 days.
- 6 month time to close on the next property
- What is a “like-kind” property
- investment property for nearly any kind of investment property. NOT PRIMARY RESIDENCE. You can exchange a single family or several for a commercial or multi-family property.
- You MUST purchase as much real estate as you sell COST wise.. Does not matter if you change one property for thee or more. The import part is the dollar value amount.
This system only works for buy and hold investors. You should hold for at least a year before you try to do a 1031 exchange. This method has been used buy rehabbers when they rent the property for a period of time after the rehab, then after a period of time they do an exchange.
Now if you can use this method if you hold the properties for you life span, when the properties are inherited by your heirs they will not have to pay the deferred taxes.
You can have as many 1031 exchanges as you like. You must “intend’ to hold the property for “productive use” as an investment, but there is no set time period when you can do a 1031 exchange.
Here is Dave’s contact info
Dave Foster || Phone 850.889.1031 || fax 303.496.1031
Corporate Office 303.789.1031 || firstname.lastname@example.org
Exchange Resource Group || www.erg1031.com
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