Real estate investors are always looking for ways to increase their return on investment. One of the most effective strategies they can use is a 1031 exchange, which allows them to defer capital gains taxes when selling an investment property. But how long do you have to hold a property in a 1031 exchange? Here's what you need to know.
What is a 1031 Exchange?
A 1031 exchange is an IRS-approved strategy that allows real estate investors to defer capital gains taxes when they sell an investment property and purchase another one within a certain period of time. The process of exchanging properties can be complex, so it's important to work with an experienced Qualified Intermediary who understands the ins and outs of these transactions.
How Long Do You Have to Hold a Property in A 1031 Exchange?
In order for the transaction to qualify as a 1031 Exchange, both properties involved must be held for at least twelve months before being sold or exchanged. The conservative rule of thumb is actually two years. This means that if you want to take advantage of this strategy, you will need to hold onto the new property for at least 1-2 years before being able to sell it without incurring any capital gains taxes.
What If I Don't Want to Hold the Property For 1-2 Years?
If you don't want to hold onto the new property for 1-2 years, you can always opt out of taking advantage of the tax benefits associated with the 1031 Exchange and instead just pay the capital gains tax on your original sale. This may not be ideal if you're looking for ways to maximize your return on investment, but it may be worth considering if needed.
We Can Help with Your 1031 Exchange
A 1031 exchange provides real estate investors with an incredible opportunity to maximize their returns by deferring capital gains taxes when selling an investment property and purchasing another one within a certain period of time. If you have questions about the process, our team here at Brazos1031 Exchange Company is here to help. We work with clients in every state of the country; simply contact us at (888) 508-1901 to get started.