A combination 1031 exchange is a type of 1031 exchange that allows you to defer capital gains taxes on the sale of two or more properties. This is done by exchanging the properties for one or more replacement properties that are of equal or greater value.
What are the Benefits of a Combination 1031 Exchange?
There are several benefits to using a combination 1031 exchange. These include:
There are several benefits to using a combination 1031 exchange. These include:
- Tax deferral: As mentioned above, a combination 1031 exchange can help you defer capital gains taxes on the sale of two or more properties. This can save you a significant amount of money, especially if the properties have appreciated in value.
- Increased flexibility: A combination 1031 exchange gives you more flexibility in terms of how you can structure your real estate investments. For example, you could use a combination 1031 exchange to acquire a larger property or to acquire properties in different locations.
- Increased diversification: A combination 1031 exchange can help you diversify your real estate portfolio. This can reduce your risk and improve your chances of achieving your investment goals.
How to Use a Combination 1031 Exchange with Residential Real Estate Investments
To use a combination 1031 exchange with residential real estate investments, you will need to follow the following steps:
To use a combination 1031 exchange with residential real estate investments, you will need to follow the following steps:
- Find a qualified intermediary. A qualified intermediary is a third party that facilitates 1031 exchanges. They will help you identify replacement properties and ensure that the exchange is completed in accordance with I.R.S. regulations.
- Identify replacement properties. The replacement properties must be of equal or greater value than the properties you are selling. They must also be held for investment or business purposes.
- Elect to defer taxes. You must elect to defer taxes on the sale of the properties within 45 days of the sale.
- Close on the replacement properties. The replacement properties must be closed within 180 days of the sale of the properties.
Example
Let’s say you own two rental properties that are each worth $500,000. You decide to sell the properties and use the proceeds to purchase a larger rental property that is worth $1 million. You hire a qualified intermediary to facilitate the exchange.
Let’s say you own two rental properties that are each worth $500,000. You decide to sell the properties and use the proceeds to purchase a larger rental property that is worth $1 million. You hire a qualified intermediary to facilitate the exchange.
The qualified intermediary will be able to help you identify a replacement property that meets the requirements of a 1031 exchange. In this case, the replacement property must be worth at least $1 million. The qualified intermediary will also help you close on the replacement property within 180 days of the sale of the two rental properties.
By using a combination 1031 exchange, you can defer capital gains taxes on the sale of the two rental properties. This will save you a significant amount of money, especially if the properties have appreciated in value.
By using a combination 1031 exchange, you can defer capital gains taxes on the sale of the two rental properties. This will save you a significant amount of money, especially if the properties have appreciated in value.
Conclusion
A combination 1031 exchange is a powerful tax planning tool that can help you defer capital gains taxes on the sale of two or more properties. This can save you a significant amount of money and give you more flexibility in how you can structure your real estate investments. If you are considering selling one or more investment properties, you should talk to a qualified tax advisor to see if a combination 1031 exchange is right for you. Working with Team Croskey will provide you with many informational resources, lots of real-life experience, and a phenomenal team of experts are what we offer. We will help navigate you through the best-case scenario to build your portfolio.
A combination 1031 exchange is a powerful tax planning tool that can help you defer capital gains taxes on the sale of two or more properties. This can save you a significant amount of money and give you more flexibility in how you can structure your real estate investments. If you are considering selling one or more investment properties, you should talk to a qualified tax advisor to see if a combination 1031 exchange is right for you. Working with Team Croskey will provide you with many informational resources, lots of real-life experience, and a phenomenal team of experts are what we offer. We will help navigate you through the best-case scenario to build your portfolio.