The only way to avoid the tax on the sale of real estate that has increased in value or been depreciated, is to hire a qualified intermediary to carry out the 1031 exchange process for you.
Section 1031 is the portion of our federal tax code rules that tells us what we need to do in order to push that tax off for you into the future. Capital gain tax will otherwise be due to the IRS and your state on your taxable profit which could be sizable depending on how long you’ve owned the property and how much depreciation your tax preparer has taken on it for you, over the years.
With our 1031 process, we qualify you for an exception to the capital gains tax. When you sell your investment property and then reinvest the money within 6 months, you can defer the payment of all or a portion of that tax. The rules we must follow aren’t difficult and there aren’t that many of them, but they must be followed as written. For example the two timeline rules on identifying the replacement property within 45 days and closing on it within 180 days can not be extended, and you can never have constructive receipt of the funds from the sale of the old property.