1031 Exchanges
Cliff’s Notes: The following is for information purposes only - Scherb Homes does not provide legal advice and you should consult a CPA or attorney.
A 1031 exchange, also known as a like-kind exchange, is a way for a taxpayer to defer paying capital gains tax on the sale of a property by using the proceeds from the sale to purchase a replacement property. To conduct a 1031 exchange for a home in California, the following steps should be followed:
Identify the property that you want to sell and the replacement property that you want to purchase. Both properties must be held for investment or used in a business.
Choose a qualified intermediary (QI) to facilitate the exchange. The QI will hold the proceeds from the sale of the first property and use them to purchase the replacement property.
Execute a written agreement with the QI outlining the terms of the exchange.
Sell the first property and instruct the closing agent to transfer the proceeds to the QI.
Within 45 days of the sale of the first property, identify up to three potential replacement properties that you are interested in purchasing.
Purchase the replacement property within 180 days of the sale of the first property.
For someone selling a home in the South Bay of California, a 1031 exchange can be a good option if they want to defer paying capital gains tax on the sale of their property. It allows them to reinvest the proceeds from the sale into another property, potentially one that generates more income or has more potential for appreciation.
For someone looking to buy a home in the South Bay of California, a 1031 exchange might be a good option if they are able to find a seller who is interested in conducting an exchange. In this case, the buyer could potentially purchase the property at a discounted price, as the seller may be motivated to complete the exchange to avoid paying capital gains tax.
It is important to note that there are strict rules and deadlines that must be followed in order to complete a 1031 exchange successfully. It is recommended to seek the advice of a qualified tax professional to ensure that the exchange is conducted properly.
