It’s been almost a year since the outbreak of the COVID-19 pandemic, and the world is still recovering from its aftermath. While the deadly virus took away thousands of lives worldwide, it has equally affected the 1031 exchange real estate market, especially in the United States. Consequently, investors have to suffer huge losses or pay a hefty capital gains tax on property sales.
How 1031 exchanges help investors defer taxes?
Section 1031 of IRC, widely known as 1031 exchanges, helps investors defer capital gains tax on reinvesting the sale proceeds from the previous property into ‘like-kind’ property. A typical property sale requires an investor to pay a hefty tax from their profit, which decreases the reinvestment income. However, if they choose to reinvest the entire proceeds in another income-producing asset, they can save the capital gains tax on the transaction.
Challenges faced by investors during COVID-19
It’s not that the 1031 exchange market dipped entirely due to the pandemic. Investors have been reluctantly trading properties and saving taxes using Section 1031 of IRC. However, the number of successful 1031 exchanges has reduced significantly.
What bothered most investors during the pandemic, was property identification. With strict COVID-19 limitations imposed by the federal and state governments, stepping out from the home to locate properties was never an option. As a result, many investors couldn’t complete their 1031 exchanges in time and had to pay capital gains taxes on the transaction.
Deadline extended by the IRS due to COVID-19.
Last year, the IRS had given a couple of months’ extension to investors to complete their 1031 exchanges due to COVID-19. However, it wasn’t enough for many investors as they failed to locate replacement properties in time. In contrast, the IRS isn’t planning to give any leverage in the 1031 exchange deadlines. So, investors pursuing a 1031 exchange must identify one or more replacement properties within 45 days and complete the entire transaction within 180 days.
How can you close your 1031 exchange before the deadline?
To help investors complete their 1031 exchanges in time, 1031xchange.com is providing one-to-one assistance to every investor. Our experts can help you close your property identification within three days. Besides, they will also help you get your 1031 exchange documents ready.
In this testing time, we are leaving no stone unturned to help investors save taxes and increase their reinvestment income.