The 1031 Exchange can provide major savings to investors by deferring capital gains taxes. Capital gain tax is a high tax imposed on sellers when the sale price of an asset exceeds the seller’s tax basis in the asset. The original purchase price of an asset becomes that asset’s tax basis and if later the asset holder decides to sell that asset, any amount of the sale price in excess of its tax basis, or ‘gain’, will be taxed at a higher capital gains rate. Fortunately, Section 1031 of the Internal Revenue Code (IRC) offers a special tax advantage which in effect can defer qualifying capital gain taxes.

The 1031 exchange allows for the delay of taxation on the disposal of an investment asset. That is only if the owner utilizes the profits from the sale to purchase another like-kind property or one of a similar nature as defined in the internal revenue code. As an illustration, if you purchased an asset and wish to sell after a short-term hold, for whatever reason, you could be facing a high percentage of short-term capital gains tax on the sale. The 1031 exchange provision allows you to avoid the short-term capital gains by funneling the proceeds of the sale to purchase another like-kind investment property.

Work with Peridot Realty Advisors to see if the sale of your investment property qualifies under the Internal Revenue Code section 1031 exchange program.