| What Do 1031 Exchanges Do For Me?
When selling a business or investment Real Estate property, there is typically a requirement for the seller to pay capital gains tax on the earnings from the sale. 1031 Exchanges can keep you from having to pay capital gains taxes immediately, and in some cases, keep you from having to pay capital gains taxes at any point. The way a 1031 Exchange works is if you buy a property that is similar or “like-kind” to your current property, you can postpone paying your taxes and sometimes avoid them altogether. You are required to use the proceeds of your sale to invest in a new property so that your sale is viewed as a reinvestment with no justifiable taxation. Your financial investment hasn’t changed in any significant way; the only thing that has changed is the literal property.
If you eventually sell your replacement property, you’ll have to pay your taxes at that point, but if you never end up selling your property, and you have done the proper Estate Planning, then the beneficiaries of your property will not have to pay any capital gains taxes because of the taxation step-up in basis rule. 1031 Exchanges are incredible because with the proper guidance from an attorney at the Davidson Law Group, you can help your family earn money on business or investment property and never have to pay capital gains taxes on those earnings.