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Capital gains on the sale of investment real estate sale significantly impacts investors' profits. For investors seeking to defer payment of capital gains, the Internal Revenue Service provides for a 1031 exchange. Under this provision, investors may defer capital gains tax on a sale by exchanging property for a "like-kind" replacement property. The owner must identify the replacement property within 45 days of selling the original ("relinquished") property, and must close on the purchase within 180 days of selling the relinquished property. Experts advise anyone interested in a 1031 exchange to research their options well before the sale so they are prepared to meet the requirement of identifying the new (a.k.a. replacement property) property, which could very well be a tenant-in-common investment, within 45 days of closing.
Tenant-in-common investments as an option for a 1031 property exchange provide the investor with important benefits: access to institutional-quality real estate; relief from day-to-day management duties and a steady, monthly income stream. Investors, however, are not limited to tenant-in-common investments for a 1031 exchange. Any real estate investment property is acceptable, from apartment buildings to commercial property, as long as Internal Revenue Service stipulations are met. These other options, however, often require a substantial time investment for day-to-day management.
For more information on 1031 exchanges, please click here.
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