The real estate market remains one of the best ways to make a profit. Like any other investment, there is some degree of risk and uncertainties involved in real estate. You have to accept the fact of certain taxes being present, such as capital gains tax and other tax rules. If you are not careful, you could lose a significant amount to these taxes. You can turn to the 1031 exchange. You only need to use it as intended for it to save you so much you would have paid as taxes. Here is more about your strategy for applying it.
For the most part, real estate investments tend to give you more money than you spent while purchasing them. The profit made in such instances is called capital gains. The tax authorities are always ready to receive taxes from those proceeds, whatever asset you had to part with. The amount payable depends on the duration of your ownership of the asset, and your income tax bracket. The longer you have the property, the less you end up paying; it is a long term investment. There is an allowance created by the tax authorities that allows you to defer capital gains taxes from the sale, as long as you use what you made from the sale on another property.
The 1031 exchange makes profits for you if you meet certain requirements, and complete transactions in a given timeframe.
Money made from the first sale has to go into a like-kind property. You can use any kind of property to do so since there are no concrete specifications. You only have to use one with a similar value, or one that has a higher value than the initial asset. You also must use business or investment-specific properties.
You are also expected to find a replacement property in 45 calendar days’ time the moment you sell the first one. At the same time, you have 180 calendar days from that initial sale to close on the sale of the next property. If you see yourself not meeting those deadlines, you need to file for a tax extension. You also, need to make sure you owe no other taxes on the property. Failure to do so means stiff penalties and interest.
With so many complications, it is best to use a firm to handle those details. They will hold the proceeds from the sale, and do the necessary paperwork. The moment you possess any money from the sale, you need to pay taxes on it.
For those looking to get out of the real estate business finally, there is no need to worry about the capital gains tax payments. You can turn to this site for some info, and also these reasons why you need to go this route.