What is a 1031 Exchange?

What is a 1031 exchange?

The 1031 part of it refers to tax code and it means that you can sell a property and have the benefits of not paying as much tax as you would with a normal transaction.

If you are a married couple in California and you sell your primary residence, the home that you lived in that you’ve lived in for two years, out of five years, you can have five hundred thousand dollars tax-free.

If you’re a real estate investor and you buy a 10-unit building, you own it for five years and it’s not your primary residence, you paid 6 million for it and then you sell it for 7 million five years later so there’s a million dollars profit. Normally you would pay tax on that but what a 1031 exchange allows you to do is not pay tax on this because you’re going to roll it into a like-kind property in the next three to six months.  You identify another property, you buy it and then you don’t need to pay taxes.

A 1031 exchange means you exchange one property for a like-kind property in a set amount of time without having to pay the tax on it.