What is a 1031 Exchange?

I often touch on tax advantages of home ownership, particularly for your primary residence. But there are other ways to shield your investments in real estate from taxes even if the property isn’t owner occupied. That’s what we call a 1031 Exchange.

1031 refers to the section of the IRS code where they describe how you handle these. Basically what happens is: you sell the property, you don’t handle the money (you must use a third party), and you reinvest the money into another property. This doesn’t trigger any taxes to be paid by you at the time of sale.

For instance, I had a client who had been invested in properties in California where he had done fairly well on appreciation, but not positive cash flow. He chose to do a 1031 exchange where he sold one property in California and bought three properties in Michigan. That was a great opportunity for him.

If you’re interested in learning more, please reach out or watch the video here.

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