Tax-saving Section 1031 exchanges, or 'like-kind' exchanges, may be more valuable than ever, but it might pay to act sooner rather than later.
As a real estate investor, you may want to unload one property and replace it with another. Real estate prices have surged in many areas. You may hold a property that you think has topped out and want to move on to what you think are greener pastures. Fair enough. But selling an appreciated property will result in a current tax hit — maybe a big one. That’s a suboptimal outcome if you intend to use the sales proceeds to buy replacement property.
If interconnected assets work together to serve a permanent structure , the assets, may qualify as a structural component of real property. For example, a gas line that fuels a building’s heating system counts as real property. Key point: Contact your tax adviser for full details about what constitutes real property before pulling the trigger on what you hope will be a 100% tax-deferred Section 1031 exchange.
In any case, the untaxed gain in a Section 1031 swap gets rolled over into the replacement property where it remains untaxed until you sell the replacement property in a taxable transaction. * Next the intermediary arranges for a cash sale of your relinquished property. The intermediary then holds the resulting cash sales proceeds on your behalf.
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