The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: flyersman on May 17, 2017, 12:50:06 PM
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I was in a meeting today and someone was talking about buying a house from a seller. He mentioned asking the seller if he knew what a 1031 Exchange was. The seller did not so he bought it full asking price.
Can anyone explain?
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Did he mean a 1031 exchange?
I don't know much about 1035 exchanges, but that's when you transfer life insurance from one policy to another without triggering tax.
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A 1031 exchange is done when you sell a business and buy a replacement business.
So, if you own a rental property and you sell that and buy another rental property, you can use a 1031 exchange.
There are some requirements for the 1031 exchange
- You use a Qualified Intermediary (QI)
- Money from the sale goes to the QI, you do not touch it.
- You identify the replacement property within 45 days of sale
- You complete the purchase of the new property within 180 days of the sale
I'm not a CPA/tax person. The above explanation is very simplistic.
I just finished a 1031 exchange (https://forum.mrmoneymustache.com/real-estate-and-landlording/questionsadvice-about-rentals-gt-1031-exchange-gt-rental-gt-primary-residence/msg510801/#msg510801)
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Did he mean a 1031 exchange?
I don't know much about 1035 exchanges, but that's when you transfer life insurance from one policy to another without triggering tax.
Yes. I updated. Thanks for clarification
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Now that we've clarified it's 1031 and not 1035:
The quick and dirty is that a 1031 exchange allows you to defer the gain on sale and roll that into the basis of the new property.
As CowboyAndIndian stated, there are some hoops to jump through.