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How many methods to make more money have you looked into? There are many different ways, and not all of them may be right for you. With some time, effort, and learning, however, real estate may be the way to earn a second income.
It can even become your primary income.
Real estate investing has many possibilities that you can unlock. You can invest in properties, build them up, and sell them at a profit. Or you can invest long-term for a steady stream of money.
A useful tool for real estate investing is 1031 exchanges. They can save you money in your real estate ventures if you utilize them properly. Here is what you need to know to make the most of them.
What Are 1031 Exchanges?
A 1031 exchange may be useful to you if you own a business or investment property. If you sell one of these types of properties, you can reinvest the profits into a property similar to the one you sold. The new property has to be equal or greater in value.
A 1031 exchange will allow you to defer the capital gains tax into the future. If you die before you sell the last property, your beneficiary will not have to pay the capital gains tax at all.
If you file taxes as an individual, limited liability company, C corporation, or S corporation, you can use a 1031 exchange.
A 1031 can help if you feel like selling property now, but you anticipate your capital gains tax rate to be lower in the future. This can be a great tool if you are still working but plan to retire later on.
Qualified Intermediaries
Section 1031, which facilitates a 1031 exchange, dictates that assets gained from the sale of property are taxable. Due to this, assets from the sale have to be transferred to a qualified intermediary instead of the person who sold the property. The qualified intermediary then transfers those assets to the seller of the replacement property.
A qualified intermediary can be a person or a company and holds the funds of a sale until transferral. Qualified intermediaries cannot have a relationship of any sort with either party in the transaction.
Finding a New Investment Property
To qualify for a 1031 exchange, the funds have to be rolled over into another investment property. The new property doesn't have to be the same type of building or land. As long as the new property is for real estate investing, like a rental property, for example, you should qualify.
There is a set amount of time to pick a new property and close on the sale. You have up to 45 days to pick a new property after selling the old one. In most cases, you can identify up to three potential prospects.
You have 180 days to close on the sale of the new property after selling your old one.
Helping Investors and Renters
Real estate investing can be a tricky business, and you need tools to optimize your experience. 1031 exchanges are one tool that will allow you to defer capital gains tax and reinvest the profits into a new investment property. You only have 45 days after the sale to find potential properties, and you have to complete the sale in 180 days.
You will also need to hire a qualified intermediary to handle the funds of the sale.
If you are an investor or looking for a home to rent, Harrisburg Property Management is here to help. We offer property management options for investors and can assist would-be-renters in finding a great place to live. If you need assistance, contact us today, and we will be happy to help.
