Use 1031 Exchanges To Save Thousands in Real Estate Taxes

Use 1031 Exchanges To Save Thousands in Real Estate Taxes

A 1031 exchange could save you thousands of dollars real estate taxes on your next deal.

Too many Florida real estate investors are throwing away tens of thousands of dollars in returns to the tax man. In many cases this is completely unnecessary. In fact, Section 1031 of the United States Internal Revenue Code specifically provides a massive break for investors. And they should be using it!

When rolling over the proceeds of one real estate sale into new investment properties investors can use the protections of a 1031 exchange to defer taxes on their capital gains. For many this means preserving double digit gains, and the ability to reinvest thousands more into new deals for compounding gains, instead of overpaying on taxes.

Since most Florida property investors are using the proceeds of their deals to fuel new ones most can qualify for these savings. There are some limitations, but there is also more freedom than most realize. The biggest catch is that the funds must be reinvested into ‘like-kind’ property. That can be one or multiple new properties, and in most cases a new investment property is like-kind to previous ones given they are both real estate for investment purposes.

However, investors must get a start on this early. It can take a little time to organize your paperwork, and make sure your trades are covered. Consult your accountant to clarify the specific benefits for you individual situation. Then contact a dedicated 1031 exchange services provider, or ask your Florida title company or their real estate attorney for help.

Another reason to get started early is that investors only have 45 days from closing to identify properties they hope to exchange into. You’ll have 180 days to actually close, and can select backup properties in case challenges come up in due diligence. It’s also worth asking your tax pros about the reverse 1031 exchange.

Alternative ways to save on real estate investment related taxes may include self-directed IRAs, accelerated depreciation under the new PATH Act rules, or investment in Qualified Small Business Stock.

Don’t overpay on taxes, explore your options, same more, and reinvest more…