A 1031 exchange is a method for deferring taxes on the sale of one property by buying another. It applies to business or investment real estate. When utilized properly, it can lead to dramatic savings. This article details the benefits of tax deferred 1031 exchanges in Michigan.
Types of Real Estate that Qualify
You must have qualified real estate before considering a tax deferred 1031 exchange. Qualified properties are ones involved with a trade or for investment. They can be rental, land, residential, industrial, and commercial real estate. You must also buy like-kind property that also meets the qualification criteria.
Benefits Of Tax Deferred 1031 Exchanges In Michigan
Normally, when you sell an investment property, capital gains taxes apply to profits from the sale. This is true despite what the money is used for afterwards. Taxes may be levied by the federal government and local state. Depending on how many years you kept a investment and the amount of equity, the taxes levied can amount to a large sum of money. A 1031 exchange enables you to divert the earnings from a real estate sale directly into purchasing another similar property and postpone capital gains taxes until you sell that additional real estate. Of course, another 1031 exchange can be possible on that other property to postpone taxes even further.
Considering a 1031 Exchange
There are several components to a 1031 exchange that you should be aware of BEFORE starting to sell aproperty. 1031 Exchanges are not something that you can initiate after a sale is complete. You must plan to execute an exchange when selling. Very exact steps must be observed to complete the exchange. This includes time frames for identifying and buying replacement property. A qualified intermediary must also be used to manage the process. If a step is skipped, all savings will be forfeited. Speak with a knowledgeable financial advisor for additional information on 1031 exchanges and to enjoy the benefits of tax deferred 1031 exchanges in Michigan.