California Condo Building

Tips for a Successful 1031 Exchange

If you are looking to sell a property that you have owned for a number of years and gain a profit, but you are not interested in paying capital gains taxes right now, you may have heard of the 1031 Exchange. This will allow you to defer your capital gains taxes, even taking money across state lines, as long as certain aspects remain in place during the deal.

Here are our top tips for a successful 1031 Exchange:

  1. Be Prepared
    Before you even list your property, you need to have a plan. Speak with your CPA and financial advisor regarding the strategy, make sure that your property qualifies as a 1031 Exchange, and whether or not it makes sense to expand your investment via the exchange.

  2. Know Your Team
    When listing your property, have a team assembled. This includes a Realtor who understands the process of 1031 Exchange, a title company with an attorney and a 1031 Exchange intermediary.

    A 1031 Exchange Intermediary is a very important part of the transaction. Should the asset sell quickly, the intermediary will need to hold any and all proceeds from the sale after closing in their escrow account. Any profits that are realized into your bank account must be taxed based upon the capital gains tax scale on the year of the sale.

    Your Realtor is also an important portion of the strategy, as they must be able to follow the timelines given for the exchange. The timelines must be followed to the letter in order to successfully defer your taxes.

  3. Act Quickly
    As we always do when listing property, plan for the asset to sell quickly. Remember that the time limit for identifying a replacement property is just 45 days from the date of closing. You are able to identify 3 different properties in that time period, then you have 180 days to close the transaction.

    The 180-day timeline also begins on the day of your initial sale closing, and these timelines are not in any way negotiable. If you miss either deadline, all of the proceeds of your sale will be considered taxable. If you are planning to leverage into a larger asset, have the financing lined up ahead of time.

  4. Communication is Key
    As long as you stay organized & in good communication with the team you have assembled, are prepared to act quickly, and follow the timelines, 1031 Exchange transactions are actually some of the easiest out there.

    1031 Exchanges have been an intregal part of our business for the last 20 years, we are happy to assist you in having a smooth transaction. For more info, please reach out to Richard at richard@thelombarigroup.com or (310) 903-6509. We look forward to serving you.

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