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1031 Exchange Explained

Internal Revenue Code allows a property investor of investment rental property to exchange rental property and defer paying federal and state capital gain taxes (20%+ applicable state taxes) in the event that they purchase a like-kind rental property. A tax-deferred exchange is a method by which a property investor trades one or more relinquished rental properties for one or more replacement rental properties of like-kind, while deferring the payment of federal income taxes and some state taxes on the transaction. By deferring any applicable taxes, the property investor has more money available to invest in other rental property. In effect, you receive an interest free loan from the federal government in the amount you would have paid in taxes.

When combined with a 1031 exchange, TIC rental properties can be even more attractive. 1031 Exchanges allow you to defer capital gains taxes by investing in a like rental property. When using TIC rental properties with a 1031 exchange, you can defer capital gains while diversifying your investments. You can purchase shares of various TIC rental properties in different locales with the proceeds of the 1031 sale.

If you are considering the sale of an investment rental property, contact a specialist today to discuss your 1031 exchange options.