A 1031 exchange is a tax break that allows you to sell a property held for business or investment purposes and swap it for a new one that you purchase for the same purpose, allowing you to defer capital gains tax on the sale. It is a swap of one real estate investment property for another that allows capital gains taxes to be deferred. Here are some key points to know about 1031 exchanges:
- A 1031 exchange is a swap of one investment property for another.
- The term "1031" gets its name from Section 1031 of the Internal Revenue Code.
- Proceeds from the sale must be held in escrow by a third party and then used to buy the new property; you cannot receive them, even temporarily.
- Both the property you sell and the replacement property you purchase must be held for use in a trade or business or for investment.
- Both properties must be similar enough to qualify as "like-kind".
- Property types that are considered to be "like-kind" properties and are eligible for 1031 exchange in New York include multifamily apartments, healthcare, self-storage facilities, and retail centers.
- A 1031 exchange allows investors to exchange an investment property for another property of equal or higher value and defer paying capital gains tax on the profit they make from the sale.
- Investors can grow their real estate investment portfolios faster by taking advantage of a 1031 exchange. Instead of paying taxes on their proceeds, they keep all their money and reinvest it into a new property.
- A 1031 exchange can help real estate investors buy more profitable properties, grow their portfolio, defer capital gains tax, and continue building wealth.
In summary, a 1031 exchange is a tax-deferred exchange of one investment property for another that allows real estate investors to defer paying capital gains tax on the profit they make from the sale.
