1031 Exchanges offer real estate investors tax benefits and access to unique deals. Making the decision about whether using this strategy is the right move for you can be difficult. It’s important to understand the 1031 exchange process and consider the value of its benefits in your own situation. We’ve broken down some of the points we think are most important for investors to know below. Are 1031 Exchanges Tax Free? Not exactly. 1031 exchanges are tax-deferred. Suppose you swap out your current duplex for another. When you sell the second duplex, you will pay taxes on it. Of course, there may be ways to minimize your tax burden, and you should absolutely run questions on the subject by your CPA. But the point is, yes, if you keep within the rules, you can accomplish a tax-free transition of property. But the piper will eventually be paid. Types of 1031 Exchange All 1031 exchanges must conform to some basic rules we’ve covered before. Properties must be investment or business-owned (not personal residences), and the property acquired must be of greater or equal net market value than the one sold. Finding deals that will fit these terms can be challenging, but in many cases, worth it. Traditionally exchanges must be executed inside of 24 hours. These are known as simultaneous exchanges. The logistical difficulties of finding and coordinating such deals mean that many investors opt for deferred exchanges, which offer more leeway on the timeline. When Should I Do a 1031 Exchange? If you’re new to real estate, you may not yet know about the capital gains tax. This tax kicks in any time you sell a property at a profit, and avoiding it is one of the primary benefits of the 1031 exchange strategy. If you’re in the position of having a valuable property for sale, congratulations. But the downside to this good fortune is the tax burden. A 1031 will offer relief here, at least for the time the new property is owned. But just know that if you use this strategy, it isn’t a permanent way around the capital gains tax. What the 1031 Exchange will offer investors selling at a high profit level is time. The use of the exchange means your gains will be deferred until the acquired property is sold At that point, you may use other perfectly legal tactics to diminish capital gains taxes or even exchange the property again. For the creative investor, especially with an equally innovative attorney by their side, 1031 exchanges may play a role in solving a broad range of real estate “problems.” But to really get the most out of them, you’ll need some appropriate professional guidance. Get an Expert’s Opinion Before Jumping Into a 1031 Exchange Deal Are you considering making your first, or even yet another routine 1031 exchange deal? It’s never a bad idea to have a lawyer take a look. The time to do that is before signing anything. Never fear. Our skilled real estate legal team can assist you with any kind of real estate deal. If you’re considering a 1031 exchange and need to protect the asset–or any other type of real property investment–don’t hesitate to schedule a consultation with one of our experts.