Understanding the 1031 Exchange

Charleston 1031 Title ExchangeA 1031 Exchange, also known a 1031 Title Exchange, allows an investor to defer capital tax gains from an investment property and instead purchase a like-kind property with the gained property. For instance, suppose you had purchased an estate for $450,000 but you wish to resell it at a value of $500,000; there however will be some capital tax attached to sale of this property. This capital tax often varies over time and according to circumstance, but for simplicity, suppose the capital tax is at 20% flat. This would mean that the sold estate would amount to a personal gain of just $400,000 after taxes, opposed to $500,000 without taxes. A 1031 Exchange allows for an investor to collect all $500,000, thereby avoiding the 20% capital tax, provided that all of the acquired money will be immediately reinvested in a new property. For an investor, a 1031 exchange can make the difference between having $400,000 and $500,000 for future reinvestment in this case.  An investor can slowly transition from an investment property of a small value  to a property with higher value by carefully utilizing the 1031 Exchange to their advantage.

Conditions of the 1031 Exchange

The mobility offered by a 1031 title exchange is virtually unparalleled in the real estate investment world, however there are some legal guidelines in place that investors must understand in order to make smart business decisions. The 45-day and 180-day requirements are two of the most important conditions of a 1031 title exchange. Beginning the day of the sale of the property, the 45-day rule specifies that an investor must indicate a list of potential new properties for purchase; within 180 days of the sale of the old property, the investor is required to purchase the new investment property. The last major legal requirement for a 1031 exchange is the involvement of a qualified intermediary or esquire. Our Charleston real estate attorneys provide legal representation to individuals in the process of 1031 title exchanges so that all these proper legal requirements are fulfilled in order to facilitate the investment process.