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Rules for 1031 Exchange When Selling Property

Selling real estate, or apartment buildings in particular, can be a daunting task. One huge concern is the tax burden of the relinquished property. If you’re looking to defer your capital gains, you should look into something called a 1031 Exchange. The 1031 Exchange regulation put in place by the IRS, allows apartment owners to exchange their current apartment building or income property for another income property without paying taxes.

If you’re looking to do a 1031 exchange, here are a couple of rules to keep in mind in order to successfully defer your gain and not pay tax:

  1. Apartment owners should designate a qualified intermediary before the close of escrow of the property their selling.

  2. Sellers should then identify the replacement property within 45 days after the close of escrow date of the sold property.

  3. The replacement property needs to close escrow within 180 days from the close of escrow date of the sold property.

  4. All proceeds must be re-invested into the new property, meaning you need to buy or exchange apartment buildings at the same price or more you sold at.

  5. The debt on the new property must be equal or greater than the debt on the previous property.

These are the basic rules for a real estate 1031 exchange. If you think it’s impossible to do or there’s too little time, think again. We can show you how to maximize your time and find your replacement property. If you need someone to walk you through the 1031 exchange process, contact us so we can give you step-by-step instructions on how to sell or buy multifamily investment properties (apartments) and defer your gain.

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