As someone who has invested in real estate, you've probably heard the term "1031 exchanges". These types of transactions have increased significantly in the last few years and are becoming very popular.
Before you can expand your real estate portfolio, you must know more about 1031 exchanges and this guide is going to do just that.
Below you're going to read about rental property, real estate taxes and how you can maximize your profits. Don't miss out on this information!
Tax Benefits
You're probably wondering why you should go through with a 1031 exchange when you can simply sell your current property and buy another one.
The main advantage of 1031 exchanges is the tax benefits. As an investor in Vancouver, Washington, you want to have as much capital as possible for your new property.
Deferring capital gains tax allows you to maximize your investments, but you only have this option with a 1031 exchange. When you purchase a property, you have to pay real estate taxes right away.
This type of real estate transaction eliminates this factor. This option also makes it easier to accumulate wealth because you can reinvest that money that would've gone had to be paid in taxes.
Like-Kind Property
During your 1031 exchange, you’re going to hear the term "like-kind" frequently. It can be a confusing term and is often misunderstood.
It’s not uncommon for people to perceive "like-kind" to mean the same type of property.
However, this is not the case. You don’t necessarily have to have two residential properties for the 1031 exchange.
The Internal Revenue Code, Section 1031, states that any property that’s being used for investment or business purposes can be considered for the exchange without triggering tax consequences.
How It Works
Purchasing an investment property can be confusing all on its own. When you add more than one and choose a 1031 exchange, it can get even more complicated. Knowing how the process works ahead of time will make the process easier.
Identify Your Properties
The first step is to identify your properties. This can take some time, so don't rush the decision. You need to decide which property in your investment portfolio you want to sell and exchange.
You’ll also need to know what property you want to buy. Once you've made that decision, it's time to move on to the next step.
Hire an Intermediary
Hiring an intermediary is key. They will help the process go smoother and will hold your funds for you until the process is complete.
Be sure to hire a team that is well-versed in 1031 exchanges. Working with someone who is knowledgeable will make all the difference and will help minimize any issues.
Tell the IRS
There is a form you must fill out for the IRS with your tax return. You'll have to include information about your transaction and the timeline of the exchange.
1031 Exchanges Overview
Now that you know about 1031 exchanges, it's time to get started. Our team in Vancouver is ready to help you with your investment properties.
Don't wait to grow your portfolio. Send us a message here and we will answer any questions you may have.
