Selling a piece of investment property is a great idea when you have a lot of equity and stand to make a profit. But, with that profit comes capital gains taxes. One good way to defer payment of those taxes is by buying another property through an IRS-backed program. These are called 1031 exchanges, and they’re a great way to protect your earnings from large tax payments.
With this type of transaction, you’ll need to buy a similar property. This doesn’t mean you have to exchange one single-family home for another. As long as you’re selling one income-producing investment property and buying another investment property or several properties, you’re compliant.
There are strict timelines that need to be followed, and you’ll need to make sure you don’t touch any of those profits. Otherwise, the taxes will apply. Talk to your investment professional about how to take advantage of a 1031 exchange.