When you sell real estate, you have to pay capital gains taxes on the sales proceeds. Depending on the sale, these can add up quickly. A 1031 exchange offers an alternative route, allowing you to defer your capital gains taxes when you sell real estate, so long as you re-invest your net proceeds into a replacement property. In this article, we are going to talk about how you can maximize your gain with a 1031 exchange of real estate.
Avoid Boot at All Costs
Receiving any boot (non-like kind property) at any point during the exchange will trigger recognition of gain. In order to defer 100% of your capital gains tax on the sale, make sure you do everything in your power to avoid receiving boot.
Pass the Napkin Test
You also want to make sure that your 1031 exchange passes the “napkin” test. Essentially, you want to go up in value, equity, and debt on your replacement property in order to defer 100% of your gains. If you fail to do so, you may end up recognizing some gain on the sale, and not being able to defer all of your capital gains taxes.
Get Help with Your 1031 Exchange
If you are looking to defer your capital gains tax burden when selling real estate, an important first step is to contact a company that specializes in 1031 exchanges. CPEC1031 has two decades of experience facilitating 1031 exchange transactions for clients in Minnesota and across the country. Working with an intermediary from the beginning of your exchange can alleviate your fears and ensure a successful transaction. Contact CPEC1031 today to set up a time to chat with an experienced qualified intermediary about your like-kind exchange of real estate.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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