What
is a 1031 tax-deferred exchange? Basically,
it allows you to sell investment
real estate and defer payment of Capital Gains
Tax by purchasing qualifying "like kind" property.
Normally, when you sell property you are taxed
on any gain you realize. Section 1031 of the
Internal Revenue Code provides a way for people to
reinvest
gain from the sale of real property without
paying taxes at the time of the qualifying reinvestment.
Taxes are deferred until the ultimate sale
of investment
property without qualifying reinvestment. At
that time, the deferred gain, along with any additional
gain, is subject to tax.
Since taxes are merely deferred, not eliminated,
you might wonder why an investor would bother
with a 1031 exchange. The primary reason is
usually
to have more money available to invest in another
property. It's kind of like the government
is lending you money, interest free, equal
to the taxes you
would have paid.
Now, like most things involving taxes, there
a number of technical requirements, guidelines
and
procedures that must be followed. Since these
can be confusing and each exchange scenario
varies,
it is best to work with a Realtor and Facilitator
who have a lot of experience in 1031 exchanges.
Ira Gordon, owner and principal broker for
Aloha Homes, has served as president of The
Investment
Group of Realtors (TIGR) and three times been
selected Hawaii Exchanger of the Year (which
is for interesting
and innovative exchanges).
If you are interested
in 1031 tax-deferred exchanges please contact Ira at (808)
941-8711 or email.