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    What is a 1031 Exchange in Real Estate? | Fridays with Fred

     

    In the world of Real Estate every homeowner and investor is aware of the capital gains that they will have to pay on equity after the sale of their home.

    Thankfully for Real Estate investors in Orange County and across the United States capital gains can be deferred with the 1031 Exchange.

    How the 1031 Exchange Works

    Let’s say that you just sold your Orange County home or rental property and you made $200,000 equity on that home.

    Instead of paying up to 30% capital gains in California on that equity you can use the 1031 Exchange if you purchase another property that’s of equal or greater value within 45 days and escrow closes on that home within 180 days.

    Great Way to Defer Capital Gains

    If you own Real Estate in California taxes is something that you will have to pay on the sale of a home but thankfully you can defer paying those capital gains with a 1031 exchange.

    Besides being a great way to defer paying capital gains, 1031 exchange is also an awesome strategy because the IRS will depreciate your capital Real Estate investment by 3% each year so if you continue to hold onto the property which you purchased using the 1031 exchange you can expect to only pay a “marginal” tax rate or 15% of the cost of your property in the future.

    1031 Exchange Basics

    Breaking down the 1031 Exchange you must do the following to benefit from this strategy:

    A. Purchase a home that can be considered “like kind” and is equal or greater than the home or property that you just sold.

    B. All equity of the sale from your relinquished home or property must be used for purchasing the replacement home.

    For more information on 1031 Exchange and how this strategy Associates today by calling us at (949) 272-0125.

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