Advanced Investors

Cutting the Tax Bite with a 1031 Exchange

Cutting the tax bite with a 1031 exchange

Now that you’re making some profit in real estate, you’ve no doubt discovered that Uncle Sam has his hand out for his share. Fortunately, there are a few ways to legally get the better of the taxman. One is the 1031 exchange. This won’t work for every deal, but when the situation is right, it can save you thousands of dollars in taxes. A 1031 exchange is simply exchanging one property for another outright, for the purpose of avoiding capital gains taxes. It is allowed under IRS Section 1031. The rules and the execution of a 1031 exchange can get a little tricky, so it’s advisable to have a tax professional help with the process.

If both properties have exactly the same value, then it’s an even exchange, and there is no tax liability. But, it is a rare occasion when two properties have exactly the same value. The “boot,” or extra cash required to make up the difference, is taxed at the normal capital gains rate.

Both parties will typically use a Qualified Intermediary. In Denver Colorado, a Qualified Intermediary is subject to legislative restrictions for the protection of the individuals partaking in the exchange. If you’re looking for a 1031 exchange in the Denver area, let us guide you through the maze. Check out our list of affiliate Denver companies or contact us directly at 720-284-4411 to find qualified intermediaries.  

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