Whether you’re a seasoned investor or just getting started in commercial multifamily real estate, you may be familiar with the concept of a 1031 exchange. For those who are new to investing, a 1031 exchange is a procedure that allows you to sell an investment property and buy another while deferring capital gains tax.
The United States tax code provides a special rule for investors who want to sell their properties and exchange them into something else. This is called 1031 exchanges, which can be very beneficial if done correctly – but only with understanding how they work.
To qualify for a 1031 exchange, the property that you’re selling must be held for investment or business purposes. This means that your primary residence does not qualify. In addition, the property that you’re buying must be of equal or greater value than the property that you’re selling, and the proceeds from the sale must be used to purchase the new property.
You also have a limited time frame in which to complete a 1031 exchange. You must identify the property that you intend to buy within 45 days of selling your original property, and you must close on the new property within 180 days of selling the original property.
If you’re thinking of using a 1031 exchange to invest in commercial multifamily real estate, there are a few things to keep in mind. First, you’ll need to work with a qualified intermediary who can facilitate the exchange and hold the proceeds from the sale of your original property until you purchase the new property.
Second, it’s important to have a clear understanding of your investment goals and how a 1031 exchange can help you achieve them. Working with an experienced real estate professional can be helpful in this regard.
Lastly, remember that there are risks involved in any real estate transaction, so be sure to do your due diligence before entering into an exchange. But if you understand the rules and risks involved, a 1031 exchange can be a great way to invest in multifamily real estate.
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