21 Jun

How Can Investors Legally Defer Taxes on a Property Sale?

Property TaxThere are certain factors to consider before engaging in 1031 properties in Utah, a transaction that firms such as 1031 Exchange Place can help you with. The increasing pace of rental prices has led many property owners to consider a 1031 tax-deferred exchange deal.

This lets them defer paying taxes legally when they exchange their property for a new type of asset. However, take note that you should not incur any profit or losses from a sale, according to the IRS Code guidelines.

Basic Information

When planning to exchange an investment property, you should identify and acquire a similar property with the same or higher value within 180 days. A 1031 transaction should involve a property on a like-kind basis, which means you cannot sell a commercial property in exchange for a single-family house and vice-versa.

Hence, investors need to declare that their transaction is only driven by business or investment purposes. In some cases, you may not receive any monetary payment from a sale. Otherwise, certain taxes will apply in that situation. The IRS also requires a qualified intermediary to oversee a 1031 exchange.

Hot Investment Markets

Property investors should look into Salt Lake City where the market offers high rental yields for single-family investors. Based on a HouseCanary report, the city is among areas in the Mountain West region where prices are low, and investment returns tend to be higher.

The report’s rental index for the first quarter predicted an estimated 7.7% yield for standalone rental houses nationwide. Other good investment markets in the Mountain West include Boise in Idaho, Billings in Montana and northern Denver.

Conclusion

Like any other investment, a 1031 property deal carries some form of risk. You should consult with a real estate attorney or other professionals to review the terms of a deal. By doing due diligence, you minimize the risk of falling victim to certain scams.