Hey there,
Just like you, I had no idea about 1031 tax deferred exchange. My CA told me its meaning and shared that it can save me some serious cash when I sell an investment property! I will share my learnings in the paragraphs below.
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What is a tax deferred exchange in real estate?
In simple terms, when you sell a property and use the proceeds to buy another immovable property without having to pay any capital gains tax, it is known as 1031 exchange or tax deferred exchange. It is also known as Starker Loophole.
I will explain, tax deferred exchange meaning with an example. Imagine that instead of taking the cash from a property you sold, you transfer the property to a third-party intermediary. They then sell the property to the buyer and hold onto the proceeds until you find a new property you want to buy. Once you find your new dream property, the intermediary uses the proceeds from the sale of your old property to purchase the new one on your behalf. This way, you get to defer paying taxes until you eventually sell the new property
There are rules and regulations that need to be followed to qualify for real estate deferred taxes. For example, you need to find a replacement property within a certain amount of time, and the new property has to be of equal or greater value than the old property.Tax deferred exchange is conducted in other countries as well. Eg, Section 1031 Exchange in the United States.
This is all the information I have on 1031 tax deferred exchange.To learn more, refer to the links given below.
Read more:
How to get income tax assessment order
Does sale of agricultural land attract income tax
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What is a tax deferred exchange in real estate?
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2023-03-28T13:25:09+00:00 2023-03-28T13:51:43+00:00Comment
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