Deferring Losses On The Sale of Property Using 1031 Exchanges

A 1031 Exchange is a wealth-building strategy that enables an Investor to defer the payment of depreciation recapture and capital gain taxes by selling qualified use property that has been held for rental, investment or use in the Investor’s business. The Investor can retain all of the equity or funds invested and gain the ability to trade the property up and acquire yet more valuable property.

In some instances, however, an Investor may wish to defer a loss on the sale of their investment property. Postponing the recognition of a loss on the disposition or sale of investment property into a future tax year may provide better tax benefits if the Investor expect to be in a higher tax bracket in the future. However, the loss can only be carried forward a limited number of years on income tax returns and this applies only for specific types of taxpayers.

Whether it is a gain or loss, structuring the disposition or sale of any investment property as a 1031 Exchange will require that the income tax consequence be deferred. If an Investor takes a net loss on the sale of their investment property, most taxpayers make the best of a loss in real estate by attempting to write it off on their income tax returns, which is a benefit, but deferring recognition of a loss comes with its inherent risks and benefits as well.

In order to determine if this course of action is prudent for your current circumstances, an Investor should contact their accountant or personal tax counsel before engaging in any 1031 Exchange, especially when it comes to the disposition or sale of investment property. Knowing exactly what kind of result that may come from that course of action, especially as it relates to income tax, is paramount before making any sort of investment, especially if a great deal of risk in involved. Bear in mind that the particulars of any transaction structure can be altered prior to closing, but once the deal is, in fact, closed, the structure can no longer be altered.

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Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.

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If you are a fully licensed Qualified Intermediary and would like to be evaluated and possibly added to our network of QI state and local providers, please call us today at: 1-800-390-8083

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