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  • Writer's picturePatrick Aloisio

What is a 1031 Exchange?

Updated: Jun 15, 2022


What is a 1031 Exchange?

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Here’s a secret all rich people know...


What is the most savvy real estate trick to not pay any taxes?


Let me tell you about the 1031 Exchange!

What is a 1031 Exchange?

When you sell a property you have to pay capital gains tax on any profits from the sale, and that can be a lot of money!


With the 1031 Exchange, this rule allows you to defer any capital gains taxes if you are buying a property of equal or greater value.


Taxes and laws will vary based on location but here’s how it works...


You have a $500,000 house that you own free and clear, and you decide to sell. Normally you’d be paying capital gains tax that might have been 20%, or about $100,000 on the sale.


With the 1031 Exchange, the $500,000 proceeds from the sale is set aside in a special account with a designated agent. From the sale date, you have 45 days to identify new potential properties to purchase. Assuming you successfully submitted the potential properties to the agent before the 45 days expired, you then get an additional 135 days to buy a property.


If you buy a new property within 180 days from when you sold your old property, all $100,000 you would’ve paid in taxes is deferred until the next time you sell.


But the craziest part about the 1031 Exchange is you can do this over and over until you die. Meaning you will never have to pay taxes on the property sale! Take that IRS... Follow for more plain easy analysis.

What is a 1031 Exchange?
 

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