Is A 1031 Tax Deferred Exchange The Right Option?

by | Aug 10, 2021 | Lawyers & Law Firms

It is not uncommon for people in Davenport, IA, owning investment properties to want to sell their property when the market is right. While these properties offer the potential for substantial profits, they can also create significant tax liabilities with regard to capital gains.

One way that individuals can defer capital gains tax is to take advantage of a 1031 tax deferred exchange in Davenport, IA. Also called a like-kind exchange, it requires the seller to purchase a like-kind of investment property that is equal to or more than the sale price of the current property. When this process is completed correctly, the seller (who is also the taxpayer) can defer the capital gains tax. The capital gains tax is charged on the appreciated value of the property for sale.

While a 1031 tax deferred exchange is the right option for many investors, it is not always the ideal solution. Considering your options and speaking to a professional who specializes in 1031 like-kind exchanges is the first step before making any decisions on investment property sales or replacement property purchases.

The Cost

It is not always possible to find a replacement property that is on the market and priced correctly for the investor. If the investor is not interested in the ongoing costs of owning investment property and the elevated price to purchase is more than the capital gains taxes owed, it may not be the right decision.

Tax Loss Considerations

In some markets, an investment property may actually be sold at a loss. In these cases, when there is no appreciation and no capital gains, there is no need to complete a 1031 tax deferred exchange.

Understanding options is critical when determining if a 1031 like-kind exchange is the best option for your Davenport, IA property.

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