Buying and selling real estate seems like a simple process and for most homeowners it is. One person wants to buy a home while another person wants to sell. Many who have bought, inherited or invested in real estate are now facing major risks when deciding how, when and why to sell without incurring huge tax liabilities.The federal government has in place a wonderful tool that allows most who own multiple properties to transfer ownership without the tax liability, while enjoying the potential gains associated with real estate investing.

There are as many reasons to seek a 1031 Tax Deferred Exchange as there are investors, but the fact is that completing such a property exchange can save you a significant amount of capital gains tax when you decide to sell your existing investment property and to acquire another one. Know as a 1031 Starker Exchange, the US Federal Government opened the door for a structured and time sensitive way for anyone who qualifies to be able to transfer ownership of real estate from one property to another without tax consequences normally associated in real estate sales and transfers.

After this initial most important step, usually performed with the assistance of a realtor or other expert in real estate matters, the seller would hire the assistance of a Tax Exchange company who’s attorney’s specialize in these kinds of transfers. Since the timing becomes a critical component for the initial sale and ultimate settlement of the replacement property, the realtor’s role in conjunction with that of the attorney will need specific targets of available replacement properties and locations as well as accurate marketing and evaluation of the property to be sold in the initial process.

Finally, as all transactions come together within the 180 window allowed by law, the seller creates a transfer of the selling property “in trust” with a third party who is usually the tax exchange company attorney. This simple but most critical step makes the actual transfer legal in order to make the tax benefit relief possible.

Tags : 1031 Tax Deferred, Exchange, Property