How Does a 1031 Exchange Work in California?

A 1031 exchange is a gift for all home-owners and real estate investors.

Defining the 1031 Exchange

Avoiding Capital Gains Tax on Real Property

How does a 1031 exchange work in California? Contra Costa County Realtor Elizabeth Russo explains []  .

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Who Qualifies for a 1031 Exchange?

I’m with Old Republic Exchange and an exchange is a tool for people who own investment real estate or real estate that they use in their trade or business. If they want to be able to sell this property and not pay capital gains tax to the government they can use and exchange. What they would need to be doing though, is their plan would need to be to sell a property and then buy a property as well. If it structured like an exchange, then you can defer. This is a great way to build wealth and people with loans and people with cash can do this and avoid capital gains. That’s correct. The wealth building tool can be really powerful. I’ve got a slide presentation here that is interesting and it shows an example of two people who buy properties at the same time at the same valuation. It shows them putting down 25%, assumes maybe 4% appreciation. You can see when you go through these that the difference if you sell and pay your taxes as you go in real estate versus doing exchanges. It can just be incredibly powerful and you can end up with a good deal of real estate wealth this way. Obviously as we can see. Who qualifies for a 1031 exchange? Well, people or entities.

The Like – Kind Requirement in 1031 Exchanges

It could be a corporation or a partnership who own property for an investment or use in their trade or business. It’s really more about the property and whether the property qualifies as to whether or not it will work. The property needs to be something that they have owned and held for investment for a period of time. It can not be something that you are just buying for the purpose of reselling, so flipped properties are not a real good fit. Now, I had a client ask me, hey I have residential and I really want to go to commercial and I’m tired of, what do you call those the three T’s.

1031 Exchange Timeline Requirements

Oh, tenants, toilets and trash. I’ve got to tell you I’m tired of the tattle-tales too. For people like me that want to trade out into commercial property is that possible with a 1031 exchange? Absolutely! That’s ones of the more misunderstood aspects of exchanges. There is a requirement that you buy something that is like-kind. Like-kind when you are dealing with real estate, is just what was the intention of ownership. Did you hold it for investment and did you hold it for use in your trade or business and is the property you are going to buy something that you are going to hold for investment or use in your trade or business and it’s interchangeable. People can go from residential rentals to commercial, from commercial to retail, retail to industrial, industrial to apartments.