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If you are a real estate investor or you want to learn how to become one, understanding the basics of a 1031 exchange is something you want to learn about.
When you sell an asset of any kind, the profit that you earn is referred to as capital gains.
In most cases, you are expected to pay a capital gains tax on this amount.
There is, however, a section of the United States tax code (Section 1031, as you may have guessed) that offers shelter to investors.
A 1031 exchange, in the simplest terms, is a matter of replacing one investment with another.
You can think of it as taking the profit from one investment and using that to invest in something else.
In the eyes of the IRS, this is not a matter of cashing out on your earnings; it is simply a way of letting your capital grow further.
If you’re interested in seeking tax shelter under Section 1031 always contact your accountant and/or tax advisers.
If you need a recommendation for an accountant, give us a call, we will be happy to help and guide you in the right direction.
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