When it comes to downsizing your home or changing locations, you’ve got a lot on your plate. Does the idea of selling property and buying a new one leave you stressed?
Luckily, there are ways to sell your home without having to present it to buyers and negotiate a selling price. A 1031 exchange can help you sell your current home and purchase a new one all at the same time.
Are you wondering how does a partial 1031 exchange work? If so, you’ve come to the right place. We’re going to break it all down for you. Without further ado, let’s jump right in!
What Is Partial 1031 Exchange?
This is a form of exchange that allows a taxpayer to exchange exactly one type of property for another without having to pay capital gains. It also allows an investor to restructure their portfolio without incurring a tax burden.
So how does it work? In a partial exchange situation, the investor enters into a contract to sell the relinquished property and simultaneously enters into a contract to buy the replacement property.
Part of the proceeds from the sale will be used to purchase the replacement property, and the deferred exchange funds are held by a qualified intermediary. This money can later be used to buy additional replacement property, completing the exchange.
Overall, the investor thus receives the opposite type of property without having to pay capital gains.
The Benefits of a Partial 1031 Exchange
The main benefit of a partial 1031 exchange is that it allows an investment to be reallocated to a more desirable property while deferring taxes on the gains. However, it must be structured correctly to qualify.
To do this, you must hire a qualified real estate attorney or a tax deferral consultant to guide you through the process. Furthermore, you have to remember that time constraints and IRS rules apply.
When done correctly, investors can capitalize on the benefits associated with the exchange to defer taxes without making additional cash outlays.
Rules and Requirements of 1031 Exchange
This type of exchange works much in the same way as a regular one. However, instead of exchanging the entire property for like-kind property, the owner receives a portion of the sale proceeds as cash.
To qualify, the property must meet the definition of “like-kind,” and the exchange must be completed within the allowed time limit. In addition, the taxes on the cash proceeds must also be paid at the time of sale.
Lastly, professional guidance should always be sought when utilizing a 1031 exchange to ensure all IRS requirements are met.
Interested in learning more? Visit https://www.startanexchange.com and start expanding your knowledge to achieve a successful exchange!
A Basic Guide to Partial 1031 Exchange
A partial 1031 exchange is a great way to defer taxes on real estate profits and reinvest the money back into the market. It’s an attractive option for real estate investors who are looking to grow their portfolios without taking on additional taxes.
To determine if an exchange is feasible for an investment property, it is important to work with an experienced CPA or tax attorney. Take action today and reach out for the help you need!
Did you find this article helpful? Check out the rest of our blog now!
