Capital gains taxes are a big point of concern for any taxpayer considering a sale of real property. Section 1031 of the Internal Revenue Code offers a method for deferring capital gains taxes on the sale of real estate. In this article, we are going to explain how a 1031 exchange is the best way to defer capital gains taxes when selling real estate.
The 1031 Exchange Process
Let’s start with a brief breakdown of the 1031 exchange process. The idea behind section 1031 is that instead of selling property in an outright sale, you exchange your property for a newer, bigger replacement property. Here’s how the process typically works:
- You sell your relinquished property.
- You identify new replacement property.
- You redeploy your net proceeds from the relinquished property into the replacement property.
The Result? Capital Gains Tax Deferral
If you meet all the necessary requirements, you will be able to defer 100% of your capital gains tax burden on the sale. Depending on the property in question, this can result in a HUGE tax savings.
Defer Capital Gains Taxes
If you are looking to sell a piece of investment real estate, but are hesitating because of the potential capital gains taxes, then a 1031 exchange may be right for you! Contact one of the 1031 exchange professionals at Commercial Partners today to learn more about the process of exchanging property under section 1031 of the Internal Revenue Code. Our qualified intermediaries have over two decades of experience helping clients with their real estate exchanges. Contact us today at our Minneapolis office or one of our satellite offices around the country to set up a time to chat.