Can I sell an investment property without paying tax on the capital gains? What is a tax-deferred exchange?
You can sell an investment property using the 1031 Tax-Deferred Exchange process and reinvest the proceeds into another investment property of “like-kind” without triggering a taxable event. This may be advantageous if your property has already been depreciated and you want to move into another property without paying capital gains during the transaction. This process allows you to deffer the tax that would be owed to the IRS but not to avoid it. If you later sell your investment properties, taxes may be due at that time. Because the tax rate for capital gains has been reduced to 15%, many investors are now choosing to sell and pay the taxes due rather than exchanging for another investment property. The advantage of a 1031 exchange is to postpone taxes due on a sale of qualifying properties, to have more money available to invest into another property. Here are some of the general rules to follow: The value, equity and debt on the replacement property must be equal to or greater than
