1031 exchanges are a great way for real estate investors to defer taxes on properties that they are buying and selling. Simply speaking, 1031 exchanges allow investors to “swap” properties, which means that they are able to defer the capital gains taxes that they would have owed initially on the first property.
There are some terms that need to be satisfied in order for an investor to legitimately engage in a 1031 exchange. One of the key terms is the necessity of participating in a like-kind exchange. This means that property that is exchanged should be used for the same purpose, whether residential, commercial or otherwise.
Many wonder what happens to property gained through 1031 exchanges when the owner passes away, and whether 1031 exchanges can play a role in estate planning. The following is an overview of how 1031 exchanges can play a role in estate planning.
Tax deferment through 1031 exchanges
There is no limit to the amount of time that you are able to benefit from tax-deferment in 1031 exchanges. This means that you can defer the taxes you owe until the end of your life. When a person in possession of 1031 exchange property passes away, the tax once owed on that property is erased. This can be an extremely advantageous way to avoid capital gains tax on property and to maximize the assets you are able to leave to your heirs.
If you are considering the impact that 1031 exchanges could have on your estate plan, it is a good idea to learn more from an experienced attorney in Florida.