Avoid Capital Gains When You Sell On A 1031

When most of us consider investing in Annapolis real estate, we envision cash flow, excellent returns on our investment when selling, and the many wonderful benefits of owning an income-producing property.  You’ll recall, however, that Uncle Sam always wants a fair share of our wealth-building strategies. And, owning real estate is how many Americans continue to create wealth for themselves.

Owning a home in Annapolis, beyond a primary residence however,  creates new tax challenges

Let us explain.

When you own just your home, and you choose to sell it before living in it for two years, capital gains taxes are likely to show up. But, with the average homeowner staying in their home for 5-7 years, this is rarely a problem.

When you start investing in and selling additional income properties, the government wants a piece of your earnings by way of capital gains taxes.

Enter the Tax Benefits of a 1031 Exchange

First, what is a 1031 Exchange?  A 1031 exchange occurs when you sell an investment property (a home other than your primary residence) in which you would generally have a taxable gain.

Instead of cashing out at the time of sale, you can sell using a 1031 exchange, a tax strategy that allows you to reinvest your profits into a similar (or “like-kind”) property and defer paying taxes on whatever you earn.

A 1031 Exchange is a great way to save and maximize your investment profits when investing in real estate and selling property in Annapolis.

What you should know about a 1031 Exchange

Equal Or Greater Value: As mentioned previously, to receive the full benefit of a 1031 exchange, your replacement property should be of equal or greater value.

Time Limits: You must identify a replacement property within 45 days of selling your investment and complete the exchange within 180 days. You can start your search for a home in Annapolis, right here on our site.

Work With Your CPA: The amount of capital gains taxes you pay are highly dependent on your income level and other financial factors. We recommend always speaking to your accountant or CPA to determine how these gains can impact your finances. If you don’t currently work with a CPA, here’s an article with 16 Tips to Finding the Right One.

Real Estate Investment Strategies

As real estate professionals in Annapolis, we recommend that our clients use a 1031 Exchange to forgo paying capital gains taxes when selling investment properties.

Doing so allows you to:

• Free up more of your profits
• Reinvest those funds into your future long-term retirement or other real estate investments.

There are rarely get-rich-quick schemes in wealth-building strategies so, we recommend that you focus on searching and investing in Annapolis properties that you can hang onto long-term that will generate the rent rates and cash flow you want.

The Wright Team of real estate professionals is familiar with the best neighborhoods and areas in Annapolis, and we know where rental properties are needed and which areas yield significant returns. We’ll also share the data you need to make wise investment decisions around cap rates.

The Bottom Line

A 1031 exchange is a lucrative strategy real estate investors enjoy to help them upgrade their properties over time and avoid dealing with renovations or costly repairs.

The Wright Team of Coldwell Banker Realty Can Guide You

Whether you decide to buy now or in the future The Wright Team of Coldwell Banker Realty is here to help guide you through the entire process. The Wright Team provides residential and commercial real estate services in Annapolis, as well as the surrounding communities in Anne Arundel County. With over 70 years of combined experience in the industry and superior local real estate, the Wright Team specializes in historic homes, new construction projects, marketing homes to sell, and assisting buyers to identify homes to purchase in the local area. Contact us today!