The term 1031 Exchange is defined under section 1031 of the IRS Code. To put it simply, this strategy allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long another “like-kind property” is purchased with the profit gained by the sale of the first property.
Traditionally, a 1031 Exchange is between two properties in which one property of equal value is swapped for another. While this is an unusual transaction in the current Bay Area Real Estate Market, there are situations where a 1031 Exchange is something to consider.
The exchange rules require that both the purchase price and the new loan amount be the same or higher on the replacement property.
if an investor were selling a $1 Million property in San Jose that had a $650,000 loan, they would have to buy $1 Million or more of replacement property with $650,000 or more leverage.
This is a complex process, so if you have any questions or concerns, you know where to find me!