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Understanding the 1031 Exchange

On Behalf of | Sep 6, 2019 | Real Estate |

Business owners and entrepreneurs interested in commercial property investments in Ohio know that there are many details to learn about when it comes to the buying and selling of these types of properties. In addition, it is important to track changes in the tax laws that may impact some of the decisions they may make. 

One issue for many investors over the years has been the requirement to pay capital gains tax when a profit has been realized upon selling a business or commercial property. It is as though people and businesses are penalized for improvements in the real estate market. As The Street explains, however, there is one legal way that these taxes may be avoided. It is called a 1031 Exchange.

This exchange rule allows people or companies to sell a piece of commercial real estate without immediately paying capital gains. If the buyer of the property sells another commercial property to the other party, the exchange may be made without capital gains tax being incurred. The first seller may also have the profits held by a third party for up to 45 days during which time they may find another property to buy. If that happens, there may be no capital gains tax on the sale of the first property.

The Internal Revenue Service notes that prior to the new tax code being enacted, intangible or personal property could be part of a 1031 Exchange but that is no longer the case. Items like intellectual property assets, machinery and more may not be part of these transactions.





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