1031 Exchange Overview: Real Estate Investing | Magnify Equity

A 1031 Exchange Overview , officially known as a "like-kind exchange," is a tax-saving strategy that real estate investors can use to defer capital gains taxes when selling and reinvesting in real estate. Under Section 1031 of the Internal Revenue Code, investors can exchange one investment property for another of equal or greater value without triggering capital gains taxes. This allows investors to continuously grow their real estate portfolio and avoid paying taxes on their profits until they eventually sell their final property.

Key benefits of a 1031 exchange:
Tax deferral: Investors can postpone paying capital gains taxes until they sell their final property, potentially saving a significant amount of money.
Portfolio diversification: Investors can exchange into properties in different locations or asset classes to diversify their risk and potentially enhance their returns.
Increased equity: Investors can reinvest their proceeds into properties with higher potential for appreciation, effectively increasing their equity over time.
Eligibility for a 1031 exchange:
Investment property: The relinquished property (the property being sold) and the replacement property must both be investment properties.
Equal or greater value: The replacement property must be of equal or greater value than the relinquished property.
Time deadlines: Investors must identify potential replacement properties within 45 days of selling the relinquished property and complete the exchange within 180 days.