The Internal Revenue Code §1031, also known as the 1031 Exchange, is a powerful tool for real-estate investors, allowing them to hold the gains they’ve made from their real estate investments without paying taxes on them. In today’s post, AOG Wealth Management, your professional wealth management advisor, explains everything you need to know about 1031 exchanges.
Limits of Exchange
The first thing you should know is that a 1031 exchange can only be used for business investments; it can’t be used when selling your primary residence and moving into a new home. While there are some loopholes that allow you to use 1031 exchanges for vacation homes, this is becoming increasingly hard to do. Additionally, the properties you’re exchanging need to be “like-kind,” although this rule is quite liberal. For example, you can swap a strip mall for an apartment building.
The exchange itself is tax-deferred, not tax-free. This is an important detail to understand, especially for investors who are just getting started with wealth management. The tax in a 1031 exchange is deferred in a like-kind exchange, but ultimately not forgiven.
Despite this detail, there is a silver lining: there’s no limit on the number of 1031 exchanges you can do. As such, through careful estate planning, you can pass your investments to your heirs. Additionally, the cumulative deferred gains are passed on as well.
At AOG Wealth Management, we offer professional investment management services. Call us today at (866) 993-0203 to learn more about 1031 exchanges. We serve Ashburn, VA, Washington, DC, and the surrounding areas.
The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.
AOG Wealth Management, Inc. does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal advisor for such guidance.