What are 1031 exchanges, and how can they benefit you as a seller?

Recently, a seller of ours received an offer that used 1031 exchange money. They didn’t know what that meant, so I wanted to explain the concept today.

A 1031 exchange is a tax-deferred exchange. When someone sells an investment property, they usually have to pay a capital gains tax on the sale. However, with a 1031 exchange, they can transfer that money into a similar property. They only have 45 days to identify three possible properties they’ll do the 1031 exchange with; then they must buy one of those three after they sell their current property.

As a seller, keep in mind that these 1031 buyers are very motivated. They have a timeline to find a property, and if they don’t, they’ll have to pay potentially hundreds of thousands in taxes. Because of that, these buyers don’t have much negotiating power. Depending on how close they are to the deadline, these offers could almost be a done deal.

Feel free to call or email us if you have any questions about 1031 exchanges or real estate in general. We’d love to hear from you.