How Janus Title Can Help with Your 1031 Exchange
July 1, 2021
With incredible interest rates bordering on all-time lows, more and more people across the country are looking to real estate investing as an opportunity to build their wealth. Real estate investing gives people the ability to buy real property that has traditionally shown steady growth in value while also being able to generate passive income through renting. The allure of real estate investing combined with low rates has helped contribute to a hot housing market.
Like any investment, real estate investing can have a number of rules and best practices to follow in order to be successful. One term heard frequently in investment circles is “1031 exchange.” Savvy investors use this rule, which gets its name from section 1031 of the IRS code, to help shelter their real estate investment deals from capital gains taxes. Ultimately, this gives investors some additional flexibility when looking to make transactions.
It’s important to understand some of the finer details of a 1031 exchange to ensure this is the right move for a specific investor and, perhaps most importantly, ensure the rules are followed in order to correctly complete the transaction and enjoy the benefits. This article will help explain 1031 exchange rules and how Janus Title can play an integral role in a successful exchange.
An Overview of 1031 Exchanges
First of all, what is a 1031 exchange? Simply put, a 1031 exchange allows a real estate investor to exchange a property for another like-kind property. In doing so, the proceeds of the disposition of the property are exempt from capital gains taxes and reinvested into the new property. Investors could complete a number of exchanges without having to pay taxes along the way.
To be clear, this is not tax avoidance. Eventually, capital gains taxes will be due upon the final disposition of property. The 1031 exchange simply defers taxes until that event occurs, giving investors more funds in their pocket to continue investing. Most importantly, this process can help ensure capital gains taxes fall into the lower, long term bracket rather than the short term capital gain bracket.
Of course, the details of this type of tax deferred exchange can be more complex than simply selling a property and buying a new one. There are some clear rules that must be followed for an exchange to be eligible as a 1031 exchange.
Generally speaking, a 1031 exchange is reserved for investment and business property. There are rare cases where a residential property or vacation home may be used as part of such an exchange but those are the exception and not the norm.
Perhaps most important to understand about a 1031 exchange is the timeline of such a transaction. When an investor sells a property for the purpose of a 1031 exchange, a third-party holds the proceeds until a new property to purchase is identified. The new property must be declared within 45 days and closing must occur within 180 days. This does not leave a lot of room for error.
In the event that a cash profit is realized after the exchange, the remaining amount is paid to the seller and that amount would be taxable. However, this could allow the vast majority of funds to remain tax deferred with a much smaller amount left to pay in taxes. This is why real estate investors love the 1031 exchange process.
How Janus Title Can Help
As mentioned, the timelines to complete a 1031 exchange are one of the most important details for investors to understand. And, since both timelines for declaring a property and closing on it run concurrently, investors need to ensure a speedy and smooth transaction in order to be eligible for tax deferral.
Janus Title uses industry leading technology to deliver a faster closing process than any other title company in Chicagoland. This is the Janus Turnaround. In any real estate transaction, speed and efficiency is important. This is especially true when considering a 1031 exchange scenario.
With the exclusive Qualia Connect platform, Janus Title is able to provide a truly unique experience when it comes to closing on a property. The platform is built on communication and efficiency between all parties. Everything from monitoring progress, to digital signing requests, to launching video chats, to document storage, and even scheduling events or milestones are baked into a single platform.
Another area where Janus Title stands above the competition is the unprecedented access to company leaders in order to help complete a deal. Our team at Janus Title is made up of some of the most talented and experienced real estate professionals in the region. Investors and attorneys who work with Janus Title have access to this wealth of knowledge from senior leadership to help complete complex transactions like a 1031 exchange. Janus Title was built as the Chicago title company to turn to when timeliness and experience are of the utmost importance.
The Title Company for Real Estate Investors
A tax deferred exchange using section 1031 can be an incredible opportunity that allows investors to have their money continue to work for them most effectively. However, these deals are not to be taken lightly. They require expertise and efficiency. Janus Title has built an industry leading experience backed by the unmatched Qualia Connect platform to support investors and the real estate professionals we partner with.
To learn more about how Janus Title can be a trusted partner for 1031 exchanges, contact us today and see the difference a great team and groundbreaking technology can make in your next real estate transaction.