In this Fast Funding Info video, Nate Dodson explains what a 1031 Exchange is and how it can help defer your taxes.
“One of the best ways to defer your tax obligations is called a 1031 exchange.
A 1031 Exchange— 1031 is the section of the IRS code that allows you to exchange “like-kind property” and defer the payment of any capital gains until the sale of the future like-kind interest.
An important thing to note: LLC interests or stock can never work with a 1031 exchange. However, real estate is all unique but allowed to be a 1031 exchange. Generally, what the requirements are is, once you sell a property, instead of receiving the funds back, they go to a qualified intermediary that will hold them until you have acquired the next real property— real estate.
And as long as you are not taking control of those funds and using them, then those funds are allowed to roll into that next real estate acquisition. Which has to happen within six months of when you sold the first property. And as long as you do that, along with a number of other additional requirements and processes, you don’t have to pay the capital gains from the sale of the first property, and you’re deferring it to a future sale. And you can do 1031 exchange to another, to another, [etc.] so you can continue to defer your capital gain tax liabilities.”