1031 Exchanges are becoming more and more popular, and are increasingly becoming more and more misunderstood. 1031 Exchanges do not avoid or dodge capital gains taxes – but defer them. As you invest in properties, you gain value (equity) which is taxed at the normal capital gains rate (15% the time of this writing). When you sell your property and realize the gain – you also realize the burden of the tax.
A 1031 Exchange uses a qualified intermediary to accept the gain, facilitate the acquisition of a new property and defer the capital gains to another point in time – the end sale. There are many many rules and criteria you must follow when 1031 Exchanging and you must work with a reputable intermediary.
My role in the exchange process is to help you locate exchange properties quickly and refer you to a qualified intermediary. A REALTOR with a keen understanding of the process (like myself) is invaluable to your success in the exchange process.