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What is a 1031 Exchange?

A 1031 exchange allows a real estate investor to defer capital gains taxes by selling an investment property and reinvesting the proceeds into another like-kind property. The investor has 45 days to identify a replacement property and 180 days to close, and the proceeds must be held by a qualified intermediary rather than received directly. Current 1031 acts as that qualified intermediary and pays 3% interest on the funds while they are held, from the first dollar.

Key Benefits of a 1031 Exchange

  • Tax Deferral: Defer paying capital gains taxes.

  • Portfolio Growth: Reinvest all proceeds into bigger or better properties.

  • Diversification: Exchange one property for multiple or different types.

  • Wealth Building: Helps grow long-term wealth without immediate tax burden.

Basic Rules of a 1031 Exchange

  • Like-Kind Property: The replacement property must be similar in nature.

  • 45-Day Rule:  Identify replacement property within 45 days of selling.

  • 180-Day Rule: Must close on the new property within 180 days.

  • Qualified Intermediary: You cannot directly receive the sale proceeds.

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