1031 Exchange Explained

1031 Exchange Explained

Internal Revenue Code allows a property owner of investment commercial property to exchange commercial property and defer paying federal and state capital gain taxes (20%+ applicable state taxes) in the event that they purchase a like-kind commercial property. A tax-deferred exchange is a method by which a property owner trades one or more relinquished commercial properties for one or more replacement commercial properties of like-kind, while deferring the payment of federal income taxes and some state taxes on the transaction. By deferring any applicable taxes, the property owner has more money available to invest in other commercial property. In effect, you receive an interest free loan from the federal government in the amount you would have paid in taxes.

When combined with a 1031 exchange, tenancy in common commercial properties can be even more attractive. 1031 Exchanges allow you to defer capital gains taxes by investing in a like commercial property. When using tenancy in common commercial properties with a 1031 exchange, you can defer capital gains while diversifying your investments. You can purchase shares of various tenancy in common commercial properties in different locales with the proceeds of the 1031 sale.

If you are considering the sale of an investment commercial property, contact a specialist today to discuss your 1031 exchange options.