There’s so much more to real estate than buying and selling residential homes with conventional loans. So here’s a look at another way to invest in real estate with a 1031 Exchange.
Who: You, as an investor
What: 1031 Exchange: Allows an investor to sell a property, to reinvest the proceeds in a new property, and to defer all capital gain taxes.
When: A 1031 Exchange can be done when you sell an investment property (even if you didn’t initially purchase the property), if you have a rental property that is worth significantly more than the original purchase price, or if you have a bad investment that will cost you more to sell than the original purchase price.
Where: Investors are able to trade properties in different states. It is important to note that this does not apply to personal property (i.e. primary residences). If, however, you own a commercial rental property in Kentucky, you can exchange it for a single-family residential property in Tennessee.
Why: As stated above, a 1031 Exchange allows you to defer capital gains taxes.
How: The exchange must be done between two properties of the same value. An investor is simply trading properties to avoid taxes. The purchase price and loan amount must be the same or higher on the new property.