Defer Capital Gains

Written by Linda Alexander
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Did you know you could defer capital gains tax on your real estate, business equipment, licenses, art collections, and copyrights? It's perfectly legal when done correctly, and can give you more buying power from the sale of your real property. Under Section 1031 of the IRS tax code, you can swap "like kind" properties by selling one and reinvesting the proceeds into another.

Deferring Taxes Legally

As long as you continue to reinvest the money and never have "constructive receipt" of it, you can defer your taxes. A qualified intermediary is required to facilitate the transaction so that you do not actually receive any money from the sale of your property. Instead, the QI holds it in escrow and transfers all the property, titles, and payments for you.

Obviously, there are certain rules you need to follow in order for the transaction to qualify. Companies specializing in 1031 exchanges can help you with the details and answer any questions you might have. They can also locate suitable properties for you if your investments are in real estate. You will save tax dollars now and use them to invest in property of equal or greater value, which will probably appreciate in the long run.

While opinions vary on how long you must hold the property before swapping it again, experts agree that you should keep it for at least one year. That shows that you are holding it for business or investment purposes as the IRS requires. You cannot use your primary residence in a 1031 exchange.

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