When Form 4797 Exchanges 2024-2025

The 1031 exchange is a tax-free real estate investing strategy. I, Phil, am a full-time real estate investor and mentor to successful investors across North America. In this video, I will introduce and explain the 1031 exchange in depth. The 1031 exchange refers to Section 1031 of the United States tax code. This section describes how real estate investors can buy a property for investment purposes and sell it after a few years without paying taxes on any gains. Instead, these gains are tax-deferred and can be used to purchase another property. To illustrate this concept, imagine owning a house that has been rented out for at least two years. Let's say you bought the house for $80,000 and now want to sell it for $100,000, resulting in a gain of $20,000. Normally, you would be subject to capital gains tax, depreciation recapture, local taxes, and possibly the Obamacare tax if your income exceeds $250,000. These taxes could significantly reduce your gains. However, with the 1031 exchange, you can reinvest the entire $20,000 into another property without paying any taxes. This transaction must be facilitated through a 1031 exchange intermediary. This concept can be further expanded. For example, if you own multiple houses, you can sell them and combine the gains to purchase a larger property, such as an apartment complex. By utilizing the 1031 exchange, you can defer taxes on all gains until a later date. Additionally, if you plan to hold the apartment building for the long term, you can refinance and extract tax-free cash. This allows you to access additional funds without incurring immediate taxes. It is important to note that the intent of the property must be as a rental. For those who flip properties, the 1031 exchange does not apply. To better understand the 1031 exchange, consider some rules of...