Many investors who sell investment properties believe that the federal capital gains from such sales must be transferred to the IRS. However, this is not always true. IRS Code Section 1031 allows investors to reinvest federal capital gains if they swap the property for another and it doesn't always have to be for a 'like property.
You can make that money work for yourself, rather than letting the IRS take it. You don't have to sell the same property twice. According to the 1031 Code, no gains or losses can be recognized when any type of investment property or business use is exchanged for another business use. It is also known as a tax-deferred exchange.
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A 1031 exchange is a good option if you have a business or investment property. The federal and state capital gains taxes can be deferred 100%. The 1031 Exchanges are interest-free loans. If the transactions are well planned, the principal might increase. This can be a very profitable venture if you have a good realtor to guide you.
Initially, exchanges were limited to swapping investment properties with the same person. However, this is no longer the case. You can actually sell your property to someone without a relationship to the person who is purchasing the replacement property. While it is true that similar properties used to be called condos for condos and empty lots for empty lots, this is no longer true.
You can exchange your empty lot for an apartment building if you have already invested money. This is also possible if you follow the 1031 exchange guidelines. The owner of an empty lot can sell one lot, then buy several other lots or simply purchase one and sell the rest.