Commercial and other real estate owners are often seeking new ways to maximize value and increase profit. To take advantage of new opportunities or reap the rewards of existing investments it’s sometimes necessary to sell existing real estate. While generating profit from a transaction is essential to success in real estate, it’s important to be aware of the tax issues which can arise. Effective tax planning generally reduces the amount of tax owed and leaves the seller with a greater amount of profit. An effective tax planning strategy real estate owners should consider is a 1031 like-kind exchange.
What is a 1031 Exchange?
A 1031 exchange is a tax deferral method which allows a real estate owner to exchange one business or investment property for another without recognizing a gain or loss. In other words, the exchange allows the real estate owner to exchange properties while deferring taxes due into the future.
Buying and selling real estate is often times a complex process with many variables that need to be considered. However, when leveraging a 1031 exchange the complexity increases. There are strict IRS regulations which must be followed in an exchange including; timeframe for new property identification and closing, use of an intermediary to hold proceeds from the sale and holding time before the property can sold. For this reason it’s necessary to work with an experienced advisor to navigate the process.
The professionals at Keiter have significant experience working with both individuals and corporate real estate owners guiding them through the 1031 exchange process. If you have questions about a 1031 exchange, including if you qualify or other real estate tax or accounting needs, Keiter can help! For additional information please click here to contact us.