Let’s take a look at how a real estate investor can save on their taxes over the long term.

The best source of tax deferral for anyone with commercial or residential investment properties is to use what’s called a Starker exchange when selling and buying new properties. These are also referred to as tax-deferred exchanges or 1031 exchanges due to the IRS tax code they refer to.

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By following the IRS rules, an investor is able to sell and purchase a new investment property without having to pay taxes on the capital gains they made on the sale.

There are some very specific rules that must be followed in order to make this work, but the benefits of rolling your profit into your next investment will drastically increase the speed of your wealth building. Most importantly you must make sure that every bit of capital gain profit from the sale of the previous investment is used in the purchase of your new property. Also, it is mandatory to make all of your transactions complete within very specific time frames established by the IRS.

The important time frames to keep in mind when doing a deferred tax exchange are 45 and 180 days. The 45 day rule states that the investor must specify at least one potential property as the new property that will be purchased with the profit from the previous sale.

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Furthermore, the final transaction to purchase this new investment property must be complete within 180 days. There are absolutely no exceptions to this time frame, so you must make sure that everything occurs well on schedule.

In order to make sure that all of the paperwork is completed correctly and the transactions are achieved on time, it is recommended that investors seek out the guidance of experienced intermediaries that are familiar with the transactions requirements. This is the best way to insure that nothing is done incorrectly and results in you having to pay unexpected capital gains taxes.

By working with a qualified intermediary for this interaction you will have timely guidance through the exchange process, and over the long-term you will be able to save thousands of dollars through multiple property transactions which will greatly increase your wealth and equity in your real estate. Author Resource:- James provides information that gets your questions about a 1031 exchange explained through his website on 1031 exchange properties.

* Original title: “Defer Your Investment Property Income Taxes “