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Is a 1031 Exchange a Smart Choice for Real Estate Investing?

A Philadelphia commercial real estate lawyer provides invaluable assistance to investors in real estate. One of the different ways that an attorney can assist you is in understanding tax obligations and tax breaks that you can take advantage of. One of the most important tax breaks for those who invest in real estate is a 1031 exchange, which can allow you to save on paying taxes as you increase the value of your real estate holdings. 

A 1031 exchange is a great option for real estate investing in many situations, provided you understand and are able to comply with the rules for a 1031 exchange. A Philadelphia commercial real estate lawyer can provide invaluable assistance in understanding the rules for 1031 exchanges and in determining if taking advantage of this special tax treatment makes sense in your particular situation. Call Curley & Rothman, LLC to find out more about the ways in which can attorney can help you.

Is a 1031 Exchange a Good Option for You?

A 1031 exchange, or like-kind exchange as it is also called, can make it possible for you to defer capital gains taxes on profits from selling a business property or an investment property. The Internal Revenue Service provides extensive details on the rules of a 1031 exchange, which you must be aware of if you are considering selling a property and hoping to do a 1031 exchange to avoid paying capital gains taxes.

Because a 1031 exchange can provide significant tax savings by allowing you to avoid an immediate tax bill upon the sale of a commercial property, a 1031 exchange is virtually always a good option, provided you can meet the IRS criteria. You should talk with a Philadelphia commercial real estate lawyer about whether or not your sale of real estate could potentially make you eligible for the tax benefits that come with doing a 1031 exchange.

A 1031 exchange requires you to enter into both the sale of real estate and the purchase of a new property. The same taxpayer has to both sell the property and buy the new property. You must have a new property in mind in order to take advantage of the ability to defer taxes under a 1031 exchange, as you have just 45 days to provide the address of the replacement property. You also have to actually follow through on purchasing the replacement property within 180 days of the closing of the first transaction. These strict time limits sometimes make it difficult to participate in 1031 exchanges, since you need to be ready to act very soon after an initial property sale.

You also have to make sure the new property meets the other criteria necessary to be eligible for a 1031 exchange, including buying a property of similar type and of the same or greater value. If you are purchasing a new property which does not have as high of a value as the property you sold, you will have to pay at least some capital gains taxes on the sale of the old property.

Individuals, C-corps, S-corps, trusts, LLCs, and many other taxpaying entities are able to take advantage of tax benefits that result from a 1031 exchange, so you should carefully consider whether you can get this tax break when you are going to be selling an investment property and you plan to make a purchase of new real estate.

How can a Philadelphia Commercial Real Estate Lawyer Help?

A Philadelphia commercial real estate lawyer can explain the rules of 1031 exchanges so you can determine if you are able to comply with the IRS requirements to defer capital gains taxes. If you qualify and want to do a 1031 exchange, an attorney can also assist you in making sure you follow the rules to actually get the tax benefits from the exchange.

Investing in real estate requires extensive knowledge of tax laws and a careful assessment of the financial implications of any purchase. Involving an attorney with commercial real estate experience allows you to benefit from getting legal insight and an attorney's perspective on transactions you are considering. This can be invaluable as you expand your portfolio.

Getting Help from A Philadelphia Commercial Real Estate Lawyer

A Philadelphia commercial real estate lawyer understands the ins-and-outs of 1031 exchanges and can help you to take advantage of this tax break and other tax benefits associated with real estate investing. To find out more about the ways in which Curley & Rothman, LLC can assist you with making smart decisions on your real estate investments, give us a call at 610-834-8819 or contact us to speak with a member of our legal team.