1031 Exchange: What You Need To Know
Confused by the 1031 exchange? We spoke with investment property specialists and top attorneys to demystify the tax benefit.
Let’s say you bought a single-family home for $200,000, rented it out to tenants for a few years, and sold it for $300,000. That means you have $100,000 in profit, aka capital gains, burning a hole in your pocket.
You could either pay the capital gains tax rate on the $100,000 or…
Immediately invest those proceeds into a new vacation rental and defer the tax liability.
Which would you choose?
Investors who want to keep trading up would likely choose the second route and use a 1031 Exchange tax deference vehicle to do it. The process, on the surface, seems tricky and overwhelming, but walking away from the opportunity because it scares you could mean paying tens of thousands to Uncle Sam.
Investing in real estate?
Hire an investor-friendly real estate agent who can help you get access to off-market properties at a discount and assess potential rental income based on market trends. HomeLight can connect you with investment property specialists at no cost.
We spoke to Allison Simson, an investment property specialist and top-selling real estate agent in Summit County, Colorado, and Bradford Miller, owner of Bradford Miller Law, a law firm in Chicago that specializes in real estate transactions, to demystify the 1031 exchange.
