Who Qualifies for a 1031 Exchange?

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Who Qualifies for a 1031 Exchange?

Posted December 27, 2021 in Real Estate Terms

Who qualifies for a 1031 Exchange in Henderson or Las Vegas? A 1031 Exchange is not right for everyone, and not everyone qualifies for a 1031 Exchange. A 1031 Exchange allows a property owner to defer paying taxes as long as they use the proceeds from the sale of their home to purchase another home and close escrow within closing escrow on the sold property. While this can save some investors thousands, tens of thousands, or even hundreds of thousands of dollars, a 1031 Exchange isn’t right for everyone. Depending on your situation, you may not even qualify for a 1031 Exchange. Below is a quick guide to easily tell if you do or don’t qualify for a 1031 Exchange:

Must be an investment property

A 1031 Exchange is specifically for an investment property. If you’ve ever lived on the premises before, you may not qualify for a 1031 Exchange – it all depends on how many years you were living in the property compared to how long you’ve owned the property and have had it rented out. It may be in your best interest to rent out your property for a few more years so you can use a 1031 Exchange to sell the property for a larger property or several properties.

Can’t be a flipper

1031 Exchanges, at this time, are not for those who have purchased a property, fixed it up, and then sold the property. You will need proof that the home has been rented out for several years. It’s not unusual for some flippers to keep some of their flips and use them for rental properties. They will rent these properties out for a few years and then sell when the market value for the home reaches a certain point. If this is your situation, you may qualify for a 1031 Exchange.

Not for downsizers

The reason why the government allows investors to perform 1031 Exchanges is to help them build their portfolio so one day they will pay even more money in taxes. When you’re using a 1031 Exchange, you will either have to purchase a more expensive property or several properties that have a combined cost that is more valuable than the property you’re selling. If your plan is to sell your property, buy a smaller property, and keep some of the additional money for yourself, a 1031 Exchange will probably not be the right choice for you.

Can’t be slow to make a purchase

If you are planning on taking your time to sell your investment property, and eventually use the proceeds to purchase another property, a 1031 Exchange will not be right for you. At the time of posting, you have 45 days after the sale of your original property to identify the other property or properties that you will be purchasing with the proceeds of the sale of your original investment. You then have 180 days to close escrow on these properties. Depending on the condition of the current market, it may be difficult to get accepted offers on enough properties or the right property. Depending on the condition of the market you may have to move a lot faster than you may be comfortable with. This is one reason why it is a great idea to hire an experienced real estate agent. They will be able to talk you through and get you in contact with the right people to determine if a 1031 Exchange is right for you.

Can’t touch the money

If you are planning on selling your investment property in Henderson or Las Vegas and then using half of the proceeds for personal reasons and the other half to purchase another investment, a  1031 Exchange isn’t right for you. In a 1031 Exchange, escrow will put the funds of the sale of the property in a special account where it will stay until you close escrow and pay for another property. If you touch those funds at all, you’ll have to pay capital gains taxes and the 1031 Exchange will be nullified.

We hope this helps you with understanding “Who qualifies for a 1031 exchange?”! Even if you are pretty sure you won’t qualify, it never hurts to bring it up to your real estate agent to double-check that this is not an option for you. One thing you can count on real estate and tax laws is that things can majorly change overnight. If you quickly want to present your own situation and determine if you qualify for a 1031 Exchange, don’t hesitate to text or call Nevada Desert Realty at 702-509-1446. We can schedule a time to meet in person if that’s what you prefer or we can discuss over the phone your best options for selling your investment property in Henderson or Las Vegas.

Nevada Desert Realty
Klinger Real Estate Group
NVDRE B.1001526
40 E Horizon Ridge Pkwy, Ste 101
Henderson, NV 89002
(702) 509-1446
(702) 948-4910 fax