Be aware of these 1031 exchange nuances that could cause your transaction to stall

After nearly a year Personally experience 1031 exchange process, I can say that I am now a Everything is an expert1031you can trust me.

Many savvy investors know the key requirements for a successful 1031 transaction, and if done correctly, you can defer substantial investment capital gains tax. but when you actually Delving deeper into the process itself, you start Realize there’s a lot more going on behind the scenes than you might first think. Here are some often overlooked details to keep in mind.

What most people know about 1031 exchanges

• Your new property must be of equal or bigger Than the value of the property you are selling.
• You have 45 days to secure a new property.
• You have 180 days to close on the new property.

But wait, there’s more

Your sales price must include your mortgage

This is a rule that many people forget. If you sell a property worth $500,000 but still owe $200,000 on the mortgage, you must exchange it for a property worth at least $500,000, which means you may also need to provide at least $200,000 in financing on the new property. Mortgage.

Pay attention to guidance

If you sell your first property for $500,000 and you By purchasing your exchange property for $400,000, this $100,000 increment is called the “boot” and you can expect to pay capital gains on it. Do not do this. make sure The property you purchased is the same or bigger value ratio The one you want to sell.

Your new property must be located in the United States

At least in this exchange, there’s no exotic Côte d’Azur to buy.

you have to use A third party

When you sell your first home All proceeds must be deposited in escrow by third parties. If you touch them in any way, even for a day, you will lose all your taxes benefit.

You can purchase multiple characteristic

you need Identify up to three alternative properties within 45 days of your initial property closing. There are two exceptions:

1. You can actually Identify more than three alternative properties, as long as the combined value of all the properties you identify does not exceed 200% of the original property’s sales price.

2. You can choose any number of properties as long as you end up with at least 95% of the total property value. (Your agent helps you legally document your target property.)

When you pass away, your capital gains obligations disappear too

Yes, tax benefits technically delayedbut death can save your children Must pay Any deferred capital gains taxes paid on your behalf. They inherit the property and your deferred obligations disappear.

final thoughts

All in all, 1031s are still a great way to preserve your hard-earned assets and avoid taxes. But make sure you investigate all the rules and understand any loopholes. One wrong move and you lose all your gains!

Find the right agent, find the right property

Step #1: Use Agent Finder to match the top investor friendly A real estate agent helps you find, analyze and close your next deal.

Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.