When you’re getting ready to sell a real estate investment, it can be tricky to decide how to proceed. A common question which investors pose to us during our consulting session is – When to opt for a 1031 Exchange instead of a regular sale?
1031 Exchange vs. Straight-Forward Sale
Before we delve deep into the benefits and shortcomings of a 1031 Exchange, let’s understand the difference between a straight-forward sale and a 1031 exchange. If you proceed with a straight-forward sale, you can pocket the sales proceeds, but you will also be responsible for paying capital gains taxes on the sale. However, with a 1031 exchange, once you dispose of the property, instead of pocketing the proceeds, you can reinvest that capital into a suitable like-kind replacement property and defer 100% of your capital gains tax liability.
How to make the decision
If you need access to cash immediately, a straight-forward sale is definitely the right choice as a regular 1031 Exchange will not allow you to pocket any of your gains. At the same time, if you only require a small sum, you can always opt for a Partial 1031 Exchange wherein you will get access to a small amount of cash, and you can defer taxes on the remaining amount by reinvesting it. In all other cases, when you do not need sales proceeds, it will be wise to do a 1031 exchange as it is the most tax-advantageous way of selling real estate.
Defer Your Taxes when Selling Real Estate
We have over fifteen years of experience in the like-kind exchange industry. We have the infrastructure and the skills to ensure that your 1031 exchange is successful. Contact our 1031 exchange professionals today to learn more about how a 1031 exchange can help you defer capital gains taxes.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to contact us at email@example.com or 888-993-2835