"There are a few rules to consider: 1031 exchanges are intended for investment properties, not primary homes; you must exchange for another property that is similar or "like-kind," which the IRS defines as "the same nature or character"; and you have a limited amount of time to complete the exchange. As soon as you sell, the clock starts: You must identify your replacement property or properties (you can identify as many as three like-kind properties) in writing within 45 days of selling the first property."
"When you sell a property for more than you purchased it, you'll typically owe capital gains tax. The amount depends on factors like how long you owned the property and your taxable income, but it could be as high as 37% if you sell within a year and trigger short-term capital gains. However, IRC Section 1031 provides an exception, allowing investors to postpone paying tax on the gain if they reinvest the proceeds in similar property."
Capital gains tax is typically owed when selling property for more than purchase price, with the rate influenced by ownership period and taxable income; short-term gains can reach 37% if sold within a year. IRC Section 1031 allows deferral of tax if proceeds are reinvested in similar, like-kind investment property. 1031 exchanges apply only to investment properties, require like-kind replacement property, and impose strict timelines: identify replacements in writing within 45 days and close within 180 days. Failure to meet deadlines can force abandonment of the exchange. Successful investors have used 1031 exchanges to swap underperforming assets and strengthen portfolios.
Read at Business Insider
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