Capital gain in a 1031 exchange refers to the profit made on selling a property that is then reinvested into a new property through a like-kind exchange.
let’s say an investor named Sarah bought a rental property for $300,000 and later sold it for $450,000. The $150,000 difference is Sarah’s capital gain. Instead of paying taxes on that gain, she reinvests the proceeds into a new rental property through a 1031 exchange. By doing so, she is able to defer paying taxes on her capital gain until she decides to sell the new property in the future.
- Consult with a tax professional and a 1031 exchange intermediary to ensure that you are aware of all tax laws and regulations related to capital gains and 1031 exchanges
- Consider the potential tax implications of a sale before making the decision to sell and reinvest
- Have all documentation and deadlines in order to avoid any potential delays or complications
- Use a 1031 exchange to defer paying taxes on capital gains and potentially increase the value of your investment over time.
- Diversify your portfolio to spread out your potential capital gains and minimize risk.
- Keep accurate records of your purchase and sale prices, as well as any improvements or upgrades made to the property.
- Take the time to identify a suitable replacement property that aligns with your investment goals.
Capital gain in a 1031 exchange is a smart way to defer paying taxes on the profit made from a property’s sale and use that profit to invest in a new property that aligns with your investment goals. Investors can make the most of their real estate investments by working with professionals and keeping accurate records.