A top-ranked strategy in real estate is the use of a 1031 Starker exchange for a Net Lease property investment. IRC section 1031 in simple words, states that an investor can sell an investment property and use the proceeds from that purchase to invest in a new property and whilst doing so, defer capital gains.
The exchange of net lease properties under 1031 rules (invest in new property), does not imply that the properties should be similar in size or shape. Rather, IRC code 1031 allows a swap between any “like-kind” properties, which are similar in objective, be it for investment, business or trade purposes. For example, a 1031 exchange of a subject retail property into a vacant one or vice versa, qualifies, ONLY IF both properties exhibit similar future prospects. Nevertheless, before exchanging your investment property under 1031 rules, the subject property needs to be owned and held for at least 365 days.
Additionally, an investment property needs to be sold and a “replacement property” selected, within a typical, stipulated period of 45 days. For a smooth and penalty-free 1031 exchange, use an independent third party known as Qualified Intermediary, who will prepare the necessary documents and escrow proceeds until close on a satisfactory, replacement property.
Although selling of personal property is prohibited under 1031 rules, yet a (second) vacation home may qualify for a 1031 exchange. However, it needs to be proven(active real estate investors) that the home not being used as a primary residence is rented, and possesses an established market value.
Deferring capital gains taxes for active real estate investors is a major advantage of a 1031 exchange strategy. Call our expert specialists at Triple Net Investment Group, to know more about 1031 exchange Net Lease properties.
