1031 exchange taxes

A 1031 exchange is a type of transaction that is popular in the commercial real estate field. If done correctly, such a transaction offers a seller some useful benefits that allow them to continue to invest in other properties. There are some rules to be aware of though, and those that flout these regulations or make some kind of mistake could be on the hook for a hefty tax bill. This is why you may want to contact a Long Island, NY real estate closing lawyer before you make any big decisions.

What is the Benefit of a 1031 Exchange?

The primary benefit of a 1031 exchange is that you do not have to pay taxes when you sell a commercial property as long as you invest in another similar property within a short period of time. This can enable you to do more with your money and add a property to your portfolio that might be a better fit for your portfolio.

When Can I Use a 1031 Exchange?

This may sound too good to be true, but a 1031 exchange can offer this benefit because there are a number of rules that buyers and sellers must follow. In order to take advantage of a 1031 exchange, you must buy a property similar to the one you sold before the deadline. If you sold off an office building, you have to buy more office space. If you sold a retail center, you have to buy another retail center. You also must:

  • Find a property within 45 days
  • Ensure that the new property is worth the same as or more than the property you sold
  • Complete the purchase within 180 days
  • Have this exchange completed by a qualified intermediary
  • Report any leftover cash or reduction in debt as income

Do I Need to Incorporate to Use an Exchange?

You don’t actually need to incorporate if you want to use a 1031 exchange. This method of real estate purchase is available to LLCs, trusts, S corporations, C corporations, and even individuals. So you are not required to have a company already set up. We do recommend looking into the benefits of forming a different kind of arrangement that offers more legal and personal protection.

Do I Need a Real Estate Lawyer?

Some of these commercial real estate deals could have huge tax implications. Use the 1031 exchange in the wrong way and you could end up owing thousands or even millions of dollars in taxes. It can be a good idea to have a lawyer who has experience in the commercial real estate market. They can ensure that all of your contracts and agreements are in order, and they can help you avoid costly mistakes.

Schedule Your Consultation

If you are entering into any kind of commercial real estate transaction, it’s wise to talk to a lawyer first. Contact David A. Gallo & Associates, LLP to schedule a consultation with our team. We can tell you more about how we can be of assistance.