How can you keep from paying capital gains tax when you sell a rental house or other income-producing property?
The answer could be to do a 1031 Exchange. A 1031 Exchange allows the owner of an income-producing property to sell that property and buy or build one or more ‘Like-kind’ properties of equal or greater value…and pay NO capital gains tax. There are several novel ways to utilize a 1031 Exchange to increase the value of your property holdings.
There are very strict IRS guidelines that must be followed to successfully complete a 1031 Exchange.
- You must identify at least 2 potential properties to buy or build within 45 days
- The purchase price of the new property(s) should be equal to or greater than the sale price of your original property, or you pay capital gains on the difference. (This is called ‘The Boot’)
- You have 180 days from the sale of the original property to close on the new property.
- The income property that you buy or sell must be held and used as an income property for one year and a day to qualify for a 1031 Exchange.