Investing in real estate can potentially be a great way to build your wealth and create a passive stream of income that can sustain you long after you choose to retire. Best of all, investing in real estate traditionally comes with far fewer risks than other types of investments such as investing in stocks. The downside is that choosing to invest in real estate will require you to deal with a variety of different types of tax situations that can be a bit complex.

A perfect example of this is the execution of a 1031 property exchange. Thankfully, working closely with a real estate tax attorney can help you to take advantage of this type of property exchange, build your wealth, and avoid many of the headaches that traditionally come along with choosing to try and utilize these wealth building opportunities on your own. 

What Is A 1031 Tax Exchange?

A 1031 tax exchange is a unique type of tax deferment offered by the federal government that allows individuals to defer property and capital gain taxes when buying and selling rental properties. The key to this type of exchange is that you must use the profits from selling one property to purchase another qualifying property in order to take advantage of the tax deferment. When executed correctly, this type of tax exchange can allow you to significantly increase your overall wealth by allowing you to purchase upgraded rental properties without the need to keep investing new money into these properties. Instead you will simply be rolling over the profits that you receive from selling the original property. 

How Can A Real Estate Tax Attorney Help?

While the use of a 1031 tax exchange can seem rather straightforward to begin with, the truth is that, like most tax breaks, taking advantage of this tax deferment opportunity can be a bit complicated and will require you to ensure you meet all requirements in order to qualify for the desired benefits. For example, you will need to time the sale of your original property with the purchase of your new property in order to ensure both of these transactions are completed within the allotted time frame. Working with a tax attorney will help to ensure you do not overlook any details that could ultimately prevent you from getting the most out of your real estate investment. 

The bottom line is that tax codes that outline your rights, opportunities, and responsibilities when investing in real estate change all the time. Consequently, even seasoned veterans can find themselves getting confused when trying to handle all of the tax obligations that come along with investing in real estate. This is why anyone who chooses to make this type of investment should always consult a real estate tax attorney before buying or selling any real property.