A 1031 exchange is a method for deferring taxes when selling a property and buying another. It applies to business or investment real estate. When executed properly, it may lead to dramatic savings. This article outlines the benefits of 1031 exchanges in MA.
Types of Real Estate that Qualify
You must have a qualified property before considering a 1031 tax deferred exchange. Qualified properties are ones used in a business or for investment. They can be land, residential, rental, industrial, and commercial properties. You must also intend to buy similar property that is also qualified.
Benefits Of 1031 Exchanges In MA
Typically, when you sell an investment property, you pay capital gains taxes on the proceeds from the sale. This applies despite what you plan to do with that funds. Taxes may be levied by the federal and state government. Based on how long you kept a piece of real estate and the amount of equity, the taxes due can amount to a large sum of money. A 1031 exchange allows you to put the equity from one property towards purchasing a new similar property and delay capital gains taxes until you sell that additional property. Of course, another 1031 exchange can be possible on that other property to defer taxes even further.
Preparing for a 1031 Exchange
There are many components to a 1031 exchange that you must know about BEFORE selling a property. 1031 Exchanges can not be completed after a sale is complete. You must intend to execute an exchange when selling. Particular steps must be complied with to execute the exchange. This includes time frames for narrowing down and closing on replacement property. A qualified intermediary must also be involved to administer the process. If a step is missed, all potential tax savings will be forfeited. Speak with an experienced attorney for detailed guidance on 1031 exchanges and to reap the full benefits of 1031 exchanges in MA.