What is a 1031 Exchanges in RI Home Transactions
Explain simply how I, as a property owner, may benefit from a 1031 exchange in RI real estate.
A 1031 exchange,especially for real estate agents, needs to be understood so you will guide your client well in this process. Investment property owners now or in the future need to understand the benefits of these exchanges.
I have to get technical on you I am afraid. 1031 exchange is part of the Internal Revenue tax code which allows for an exchange of ‘like properties’ in order to defer your tax ramifications now. This can be a very advantageous way to postpone capital gains taxes on your investments in RI real estate sales.
In real estate, a 1031 exchange on property is for ‘like kind’ properties that are in the United States. It is a sale of one property and the purchase of 1-3 properties of same market value (in total or more) or not more than 200% of sold property or as many properties as desired but at least 95% of the initial first property sale amount. See why you need a good accountant!
Why does one do these 1031 exchanges? First, it can not be done on your primary residence and secondly, you do it because (you got it) there are tax advantages that will SAVE YOU MONEY. I am not an accountant, so please talk to someone in the field who is up on the current tax law and can guide you financially.
What kind of time limits are you talking about? Once you sell your investment property you have 45 days from closing to identify the ‘like kind’ properties. Remember ‘like kind’ property must be exchanged for equal or greater value than the property you are selling, it can not be for less without triggering a capital gain tax. In addition, the property closing must take place within 180 days of the closing of the first property or within the tax year of the 1031 exchanger (whichever is less).