1031 Exchange – So named because it is defined in section 1031 of the IRS Code, 26 U.S.C.  1031, this refers to a commonly utilized tax break which allows capital gains taxed to be deferred in certain cases in real estate transactions.

Considered one of the best ways to preserve wealth, the 1031 exchange, or Like Kind Exchange, generally allows a homeowner or real estate investor to sell one property and defer all capital gains taxes if the proceeds of the sale are reinvested in an asset of like kind, generally in more real estate.1031 exchanges are specifically structured transactions that join together the sale of an old property and the purchase of a new property for the purpose of deferring taxes.

Exchanges are primarily used for buying and selling investment real estate, but they can also be used for personal property that is used in a business. Examples of qualifying property include bare land, rental property, commercial buildings and homes other than your primary residence.

Prudent use of the 1031 exchange can shield all the capital gains on your properties until you reach retirement. Other tax strategies can preserve the gain thereafter. This makes real estate one of the best investments available, provided you do your homework.

The replacement property must be of the same like and kind. This means that if you are selling an investment property you must replace it with another investment property, and not a purchase a new primary residence. Before selling and purchasing any property, be sure to speak with a CPA or accountant to ensure proper compliance with the 1031 exchange regulation.

1031 exchanges can be done for situations where the next purchase is for an equal or larger amount than the selling price. This doesn’t mean that your next purchase has to be one property for a larger amount but could be several properties that are for a larger amount. Your escrow officer is best able to explain all these ins and outs.

If you are an investor and need help or advice on obtaining financing for the purchase or refinance of an investment property, please feel free to give me a call at 302-703-0727, or you can APPLY ONLINE HERE.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713