The introduction of Section 1031 was a historic move for the investors. It gave the investors a power to defer the taxes associated with capital gains.
Here we present some tips to ensure that process is executed smoothly.
- Purchase sufficient replacement property to defer all of the tax
Buy replacement property that is equal to or more in value than the property being sold. For example, if you are selling a property for two million dollars, you must get a property worth at least two million dollars, otherwise, you have to pay some taxes. Make sure to invest all of the net equity from the sale for buying the property.
- Use DST investments
Do you know that you can use Delaware Statutory Trusts (DSTs) as replacement properties in 1031 exchange? Apart from helping you defer the taxes, they also allow you to diversify the investment portfolio. Well, the benefits related to these DST investments are multiple, without any major risks.
- Choose a QI you don’t know
A good idea would be to ask your real estate agent or CPA for recommendations. But, you can’t choose someone who has acted as your accountant, real estate broker/agent, employee, attorney, or investment banker. A thorough research is necessary to find someone trustworthy. Make sure the intermediary is financially sound and possesses a good reputation.
- Follow 45-day rule
After closing on the property, you get 45 days for identifying the potential properties. It is advisable to finalize the property before this deadline to ensure that you don’t have to pay more than the market rates.
- Identify three properties
While searching the replacement properties, make sure you identify three properties. This gives you a chance to choose one, two, or three out of these options.
If you are looking for DST investments for 1031 exchange, contact us. We will also guide you through the whole exchange process.
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