Avoiding the Capital Gains Tax on Your Home Sale

How do you avoid paying the capital gains tax on the sale of your home?

If you have a rental property or an investment property, you can avoid paying capital gains and use all that equity to trade into another property and defer those gains until further down the road by doing a 1031 exchange. There are six rules to know if you’re interested in doing a 1031 exchange:

1. Both the old property and the new property must be held for investment. You can do any kind of trade, real estate for real estate, as long as it’s held for investment.
2. There is a 45-day identification requirement. From the sale of the old property, you have 45 days to identify the new investment property that you’re going to eventually purchase.
3. There is a 180-day purchase requirement. From the sale of the relinquished property, you have six months to close on the new one.
4. You must have a qualified intermediary. This person will hold the proceeds of the sale in an escrow account. We have some great recommendations of qualified intermediaries if you need them.
5. There are title requirements. You have to hold title in both properties. If one property was bought with a company name, for instance, the other has to be in that company’s name too.
6. You have to reinvest all cash proceeds and purchase at equal or greater value. 

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Knowing these rules will help you generate more cash flow.

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This information will allow you to use all the equity and be able to have more leverage to buy a bigger home or a different property.

If you’re looking to buy a home, sell a home, or invest in real estate, we’re here with expert advice and guaranteed results. Just give us a call or send us an email and we’d be happy to help.