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1031 Exchage – is it our friend?

Sunday, January 6th, 2008

According to Wikipedia, a 1031 Exchange is a way of structuring the sale of certain properties in such a way that you do not pay taxes on the gain of your sale.  It is a terrific tool, I am told, by one of my colleagues who attended a Real Estate investment seminar with me last November.

In essence, when you sell a property, you either realize a gain or a loss. Losses can be deducted from your taxes to offset what you owe. Gains usually are hit hard because the sale of property is not a common occurrance such as the sale of a commodity. (How many houses do you buy in a year versus how many bars of soap, gallons of gas or jugs of milk?) Also, 1 deal can net you many thousands of dollars.  I am being taught that in order to keep Uncle Sam off my back, roll my gains into another investment via a 1031 Exchange. It is named that because of the tax law it addresses.

Take care not to attempt this on your own!  You will need a good lawyer, one who actually represents Real Estate investors or is an investor him/herself. A good tax accountant who won’t freak out if they see this in your documentation and a good closing agent who will handle your paperwork correctly.

-The Flipster

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4 Responses to “1031 Exchage – is it our friend?”

  1. Jeff Kornfeld on January 7th, 2008 at 7:30 AM

    While a 1031 exchange is a powerful tool to assist in wealth preservation, it is not always suitable as people age. According to the experts, 15 – 20 % of all exchanges fail and this represents ~ $30 Billion dollars in busted exchanges.

    I thought you and your readers might like to know there is another way to defer your capital gains taxes (and depreciation recapture tax) without buying replacement property.

  2. Jeff Kornfeld on January 7th, 2008 at 3:27 PM

    Please visit http://www.selltaxdeferred.com to learn more.

  3. Hustle Strategy on January 8th, 2008 at 8:18 AM

    This can be used and I recommend seeking help on it as well. Keep it in the back of your mind on transactions.

  4. 1031 Tips List | The Flip Board on June 3rd, 2008 at 7:46 PM

    [...] email has been bombarded with questions about 1031 Exchanges. Apparently, my post discussing this was somewhat of a huge hit. To date, I am still seeing hundreds of hits to this [...]

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