A 1031 exchange is a way to defer taxes when selling one property and purchasing another. It applies to business or investment real estate. When utilized properly, it can result in significant savings. This article details the benefits of tax deferred 1031 exchanges in PA.
You must possess qualified real estate before considering a 1031 tax deferred exchange. Qualified real estate are ones used in a business/trade or for investment. They may include rental, land, residential, industrial, and commercial real estate. You must also plan to purchase new similar property that is also qualified.
Benefits Of Tax Deferred 1031 Exchanges In PA
Usually, when you sell an investment property, capital gains taxes apply to earnings from the sale. This is true regardless of what you plan to do with that funds. Taxes may be owed to the federal government and local state. Based on how many years you held a property and how much equity you have in it, the taxes owed may result in a large sum of money. A 1031 exchange allows you to divert the earnings from a real estate sale towards purchasing a new like-kind property and defer capital gains taxes until you sell that new property. Of course, another 1031 exchange could be possible on that future property to postpone taxes yet again.
Thinking About a 1031 Exchange
There are several components to a 1031 exchange that you should understand BEFORE selling a qualified property. 1031 Exchanges can not be performed after a sale is complete. You must intend to complete an exchange when you list qualified real estate for sale. Very exact timelines must be complied with to execute the exchange. This includes deadlines for selecting and purchasing replacement property. A qualified intermediary must also be employed to manage the exchange and funds. If a step or deadline is missed, all tax savings will be lost. Consult with an experienced attorney for assistance with on 1031 exchanges and to reap the full benefits of tax deferred 1031 exchanges in PA.