Capital gains are a common occurrence in the property market and can help you grow your holdings in the sector. With a 1031 property exchange, you can avoid paying taxes on these gains and reinvest the money.
Capital gains are one of the factors that make the real estate sector quite rewarding. A growing demand for commercial space and properties spells good news for investors as their properties become more valuable. If you can apply every last cent of these gains towards your next purchase, you can grow your portfolio quickly.
Doing so would mean that you have deeper pockets that will allow you to buy bigger and more lucrative commercial units. While each property sale is subject to a capital gains tax, taking part in 1031 tax exchange lets you keep the entire sales amount. Here’s how you can do it.
Do It Right
1031 Exchange Place noted that under the section 1031 of the Tax Code, the Internal Revenue Service lets you defer the capital gains tax following a property sale indefinitely. Under this arrangement, you get to sell any commercial holdings that you have but commit the entire amount to buy another commercial property.
Best of all, you have the option of buying up to three additional properties. You just need to ensure that their total value doesn’t exceed 200 percent of the sales process. It is important that you channel all the cash proceeds and avoid taking boot if you are keen on avoiding paying taxes.
Do It Quick
To harness the benefits that come with a property exchange, you must beat the time limits. You have exactly 180 days to carry out the exchange or face the taxman. For starters, you have up to 45 days to come up with replacement property or properties. Strictly, this amount to a month and a half as weekend and holidays count as well.
Once, you have the replacement properties, you’ve won the battle. You now have the remaining 135 days to close the deal to enjoy the tax deferment benefits. Working with qualified professionals, you can beat the deadline time and time again and harness these benefits.
In the right market, capital gains in the real estate sector can turn out to be quite substantive. If you can defer paying taxes on these gains, you can use them to grow your portfolio.