Facts About 1031 Exchange in Allentown and Nazareth, PA

Posted by TraditionalAbstractPA on November 13th, 2023

Trying to defer capital gains tax is not an offense. On the contrary, many American citizens prefer to consider it to buy time to pay applicable taxes. The best way to go about it would be to consider a 1031 exchange in Allentown and Nazareth, PA, and do a property swap that can be hugely beneficial in the long run.

The term does seem to be a rifle confusing to the users. It is essential to trace its history and learn that the procedure refers to Section 1031, included in the Internal Revenue Code (IRC). This provision is usually considered by real estate agents, investors, and title companies. Simply being aware of the term is not sufficient. The user must be well informed about its implications as well. One of the vital points that must be kept in mind is that such an exchange is only allowed when both properties are similar. The IRS has different standards for individuals hoping to do a 1031 exchange of their vacation homes.

Some of the most essential information related to the 1031 exchange includes the following;-

· This is a specific type of tax break that a property owner may consider. An existing property that is used for running a business or for the sole purpose of investment may be sold, and a new property purchased with the same intention. Such a move will help the investor to save a huge sum on capital gains tax.

· All the money from the sale must be held by a third party or an escrow. The amount saved in an escrow account will be used for purchasing the new property. The investor cannot use the money for any other purpose, even temporarily.

· The capital gains can be successfully deferred only when the IRS considers both properties to be like-kind.

· There is no limit to using this provision. A 1031 exchange may be done multiple times.

· One may also use an older residence for this purpose. The IRS would have to be informed about it, with permission being sought for such consideration.

Reasons to consider a 1031 exchange

Admittedly, this type of swap is not for everyone. Again, many individuals find it advantageous for various reasons, including deferring the tax. Some of the investors who are not opposed to considering a swap of like-kind properties do it for the following reasons:

· Diversification of assets- The investor can diversify the assets into different markets, thus reducing the extent of risks.

· Consolidation- A property owner may use this provision to consolidate several similar properties, thus saving on maintenance costs.

· Estate Planning- A property owner can continue to use the exchange for a lifetime, thus postponing the capital gains taxation indefinitely. The heir who inherits the estate, benefits from the stepped-up value, which is considered to be a fair inheritance.

Buying and selling of property can be complicated. It is advisable to conduct a search for real estate titles in Bethlehem and Lehigh Valley, PA, and be convinced of the existing ownership before going ahead with the investment.