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Exchange Addendum to Contract - Tax Free Exchange Section 1031

Exchange Addendum to Contract - Tax Free Exchange Section 1031-2025

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The document is an Exchange Addendum to a Contract to Buy and Sell Real Estate, outlining the terms for structuring a real estate transaction as a tax-deferred exchange under Section 1031 of the Internal Revenue Code. It emphasizes the importance of legal and tax advice, allows for limited assignability of rights for the Exchanging Party, and requires cooperation from the Cooperating Party without additional costs. The addendum clarifies that it does not alter any dates in the original contract.

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What is a 1031 tax free exchange?

A 1031 exchange is a tax-deferred exchange that allows you to defer capital gains taxes as long as you are purchasing another like-kind property. This exchange mechanism is used by some of the most successful real estate investors and can be beneficial in a variety of situations.

What is the addendum to a 1031 exchange contract?

A 1031 addendum will normally clearly show intent to do a 1031 exchange, permit assignment, and advise the other party there will be no expense or liability as a result of the exchange. Sometimes there is cooperation language asserting that both parties to the contract will cooperate with a 1031 exchange.

Is it better to pay capital gains or do a 1031 exchange?

If youre looking to avoid capital gains tax, a 1031 exchange can be a highly effective strategy. By using a 1031 exchange, also known as a 1031 tax deferred exchange, real estate investors can defer the capital gains taxes that would normally be due upon the sale of an investment property.

What is the 2 year rule for 1031 exchanges?

Unlike with a 1031 exchange, another benefit to a QOF is that, long or short-term, you can invest capital gains realized from any type of capital asset sale, into a QOF, i.e., capital gains from the sale of stock.

Why would you not do a 1031 exchange?

1) If you cannot find the right property to reinvest the proceeds, dont do a 1031 exchange. It would be foolish to try and save on taxes, but then lose principle value because you bought the wrong property at the wrong time in the cycle.

What is the downside of a 1031 exchange?

A 1031 exchange is a tax-deferred transaction. If a business owner has property they currently own, they can sell that property, and if they reinvest the proceeds into a replacement property, they can defer any capital gains taxes associated with that sale.

Exchange Addendum to Contract - Tax Free Exchange Section 1031-2025

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