How to Defer Capital Gains Tax

If you plan to sell your investment properties and buy another investment property or properties, you should consider to defer you capital gains tax to get benefit of bigger equity to purchase another investment property. You can defer capital gains tax when you exchange your investment properties with another like kind property or properties. However you have to follow IRS rules and regulation to do it.

Instructions

1. When you sell your investment property such as rental houses and have a gain, there is capital gain you need to pay to IRS when you file your tax return. However IRC Section 1031 provides an exception and allows you to deferred capital gains tax if you reinvest the proceeds in another like-kind property or properties.

2. You need to use qualified intermediary to put the proceeds in your escrow account to purchase another like-kind property or properties.

3. There are time limits to identify and to complete 1031 like-kind property exchange. You have to identify the potential properties exchange within 45 days from the settlement date or sale date of your investment property. It must be in writing and signed by you and qualified intermediary that you hired.

4. The exchange has to be completed within 180 days after the settlement date or sale date of your investment property to qualify for this 1031 like-kind property exchange.

5. The like-kind property exchange has to be in United State, it doesn't apply if the property located outside US. There are fees you need to pay the intermediary company to do this 1031 like-kind exchange for you. Check around to compare their fees.