Today's money is becoming more and more depreciated, and paying the same taxes late is an alternative asset enhancement. In the U.S., a 1031 tax deferral is available for renting real estate for commercial purposes, such as homes and office buildings.

The 1031 tax deferral, also known as the like-kind exchange, is a provision of Section 1031 of the United states national tax law.

As defined by the law, this exchange means that if the property exchanged is for commercial use , and is used in exchange for similar assets, the gain or loss of interest in the assets in the exchange is not recognized and is not subject to the asset gain tax arising in the course .

In other words, this law can be used as long as the seller purchases a higher or comparable value property and uses it after the sale of the original home.

An example is given to explain this specifically.

On July 1, 2013, Ming buys a boutique apartment for $300,000 and rents it out, which is now worth $500,000.

At the end of July 2016, Ming intends to purchase another apartment worth $500,000, but he ignores the depreciation needs of the home.

Now, he has two options:

If Ming sells his original apartment on the market but does not purchase a new property within 180 days, he will have to pay a percentage of the asset gains tax.

Because Ming has held the property for more than a year, his net income would be subject to an asset tax of approximately $40,000.

However, at this point, Ming has $460,000 left over and cannot immediately purchase a new property.

If Ming chooses to use the 1031 provision to identify the new property within 45 days and purchase it for investment or business use within 180 days, it will help him defer the tax he needs to pay and purchase the new home smoothly.

So what things should we pay attention to during the home exchange phase?

First, sell your house and buy it at the same time.

   After selling your old house, you may need a place to live temporarily while waiting for the sold property to be rented back and the new house to close.

Second, lower the price appropriately and sell your old home as soon as possible.

When selling an old home, many people understandably want to sell it for a high price, but our ultimate goal is to successfully complete the purchase and sale of the home within 180 days, so do not just go for the high price.

Third, choose the most suitable buyer.

If you communicate with several buyers at the same time, choose the buyer with the highest probability of closing, especially the buyer with a small loan amount, so that you can close as soon as possible.

Fourth, try to use the same lawyer.

If the same attorney is in charge of both the purchase and the sale of a home, you will have a better understanding of the entire situation and be able to better coordinate any possible surprises and reduce the number of twists and turns.



Meanwhile, the following five points should be noted when enjoying the 1031 tax extension.

First, prepare early.

 Choose a real estate agent with relevant experience to assist you with the whole thing, plan the timing, and pay attention to all aspects.

Second, the deposit of funds from the sale of the old house.

This money must be placed with a 1031 tax extension attorney, not in your own account, and not under the account of the attorney you hire.

Third, pay attention to the price difference between the new home and the old home.

The price of the new home must be equal to or greater than the price of the old home because any residual will have to be taxed.

Fourth, what happens within 45 days.

Within 45 days of the sale of the old home, find up to three properties to register with the attorney and the new home must come from one of them.

Fifth, what happens within 180 days.

The closing must take place within 180 days of the sale of the old home, or the 1031 tax extension expires.

Above, it can be concluded that to enjoy the 1031 tax deferral law, you must be a commercial property in the United States, find the house you want to buy within 45 days of the sale of the old house, and close the house within 180 days, and most importantly, you must remember to give the money to the attorney for safekeeping.