{"id":1985,"date":"2022-07-04T03:21:40","date_gmt":"2022-07-04T03:21:40","guid":{"rendered":"https:\/\/blog.ark7.com\/?p=1985"},"modified":"2023-05-18T02:55:22","modified_gmt":"2023-05-18T02:55:22","slug":"1031-exchange","status":"publish","type":"post","link":"https:\/\/ark7.com\/blog\/learn\/glossary\/1031-exchange\/","title":{"rendered":"1031 Exchange"},"content":{"rendered":"
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What is a 1031 exchange?<\/b><\/h2>\n

A 1031 exchange in real estate allows you to change your investment type without \u201ccashing out\u201d the capital gains. This allows your investments the chance to keep growing without taxes. The 1031 exchange applies across different kinds of real estate, including residential, commercial, industrial, special use, etc., and can be used anywhere within the United States.<\/span><\/p>\n

The 1031 exchange derives from Section 1031 of the United States Internal Revenue Code. It’s a provision that allows people to avoid paying capital gains taxes when they sell investment properties, as long as they reinvest the sale\u2019s proceeds within a predetermined amount of time into a property of equal or greater value.<\/span><\/p>\n

There are no limits in place for how frequently an investor can use 1031; you can keep rolling your investment from one property to the next and the next and the next, etc. Even if each swap provides you with profit, you won\u2019t have to pay taxes until you sell the investment for cash down the road.<\/span><\/p>\n

If all goes to plan, you\u2019ll only have to pay one long-term capital gains rate tax, ranging from about 15-20%. The tax can be as little as 0% if you\u2019re considered low-income.<\/span><\/p>\n

So, how does the 1031 exchange work? Here\u2019s how to complete the process:<\/span><\/p>\n