Real estate investing can be a tricky business to navigate. Therefore, it is vital to grasp tax break opportunities that can save you money. The 1031 Exchange, named for the United States Internal Revenue Code section, is an incredibly beneficial tax break opportunity. According to the tax code, the 1031 Exchange allows a taxpayer to "defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property."

It's important to know that you can defer capital gains or losses on a property when you close on a relinquished property and a replacement property on the same day or within 180 days after the sale of a property. This can save you a great deal of money. However, the IRS requires that the property exchanged must be a "like-kind" property, which means that it is "property of the same nature, character or class." Exceptions to this rule are properties outside the United States and property that does not include the conveyance of land. The IRS will tax the total amount of the sale if the properties fail to qualify under these criteria. Unfortunately, the IRS will not make this determination until the 1031 Exchange Forms are processed.

Knowing the restrictions and requirements can help to avoid unexpected charges and fines. For example, both properties in a trade must be investment properties to be considered like-kind property. Personal properties – primary residence, a second or vacation home does not qualify for like-kind 1031 Exchange treatment. Other properties that do not qualify as like-kind include inventory, stock in trade, bonds, notes, securities, debt, partnership interests, and trust certificates.

There are several limited partnership structures, but the only limited partnership structure that may qualify for special treatment under a 1031 Exchange of like-kind property is the Delaware Statutory Trusts. In a DST, two parties hold property or run business operations between them as an investment. In limited cases, you can perform an exchange of property for an interest in a DST under the 1031 Exchange rule without registering a capital loss or gain.

When dealing with a 1031 Exchange, it is crucial to engage a qualified professional to ensure your property exchange is considered like-kind to avoid surprises and a hefty tax bill. Licensed Florida attorneys founded Fleet Title to bring high-quality, fast, and efficient title services to the residential and commercial real estate markets throughout the state of Florida. Our attorneys have closed real estate transactions for over 25 years. At Fleet Title, you will benefit from our experienced attorneys at the cost of a title agent. To learn more about the services offered, visit fleettitle.com, call (772) 224-3338, or email them at info@fleettitle.com.