Learn the secret of 1031 exchanges

Tired of capital gains taxes sucking up your profit margin? Discovering the secret of 1031 exchanges will allow you to increase the benefits of your real estate investments avoiding paying these taxes. Best of all, you can do this legally! These transactions are known as 1031 exchanges because, to legally avoid capital gains taxes or share the proceeds with the federal government, investors must meet all of the conditions listed in Section 1031 of the Internal Revenue Code. Because these requirements are quite complicated, wise real estate investors will use an accountant, and possibly a tax attorney as well, to review each sale to make sure it meets these conditions.

Although the stipulations are quite detailed, the process is simple to understand even for a new investor. To comply, you must first make a sale. Identify an agent, known as an intermediary or usher, who will help you make the exchange. Within 45 days of closing, you must identify another property for which you wish to make the exchange transaction. Please note, however, that the transaction for this property must be completed within six months. Additionally, all proceeds from the first sale must be used to make the second purchase.

The acquired property must be valued as much or more than the first. Finally, the investor must have at least as much debt against the second property as he owed against the first. If he wants to be a smart real estate investor, he’ll quickly learn the secrets of 1031 exchanges. He can continue to use these tax-free exchanges until he stops trading investment property. If he plans correctly, he will never have to worry about paying these taxes. Keep the profits from your real estate investments for yourself; stop donating them to Uncle Sam!