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1.  Can I exchange for property of less value?

2.  Do I have to exchange for the same type of property?

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1031 Exchange
Adam Smith

Do you have your savings in an investment property that is not performing for you? Perhaps you are positioned to make capital gains on the property but for whatever reason the property just doesn't fit your investment scheme, yet you are unsure how to get out of the property without paying taxes on the capital games. If this is the case, then it is time you learned about the or a 1031 exchange and a commercial bridge loan. In a nutshell a 1031 exchange will help you avoid taxes on the sale of the property so long as you are willing to reinvest the money in a similar property and the bridge loan will help you close quickly on your next property.


The term 1031 exchange comes from the Internal Revenue Service's dictionary. The 1031 exchange basically outlines the scenario whereby you can sell your real estate property and avoid any taxes on the capital gains. As always, there is a catch. First, to avoid taxes on the capital gains you must reinvest the money into another property within 45 days of selling the original property. Additionally, you cannot just purchase any old property that you find attractive. Rather, the 1031 exchange rule says you must purchase a property that is of "like kind," or very similar to the real estate property you sold. If you fail to meet these conditions then the capital gains made on the sale of the original property will be taxed by the IRS.


So a 1031 exchange helps you avoid taxes when you sell a property, but how do you go about selling one property and purchasing another property in a span of 45 days? The answer to the time issue is the commercial bridge loan which is sometimes referred to as a mortgage bridge loan. A or a bridge loan is designed to serve as a temporary or short term loan and lends itself to quick closings. Thus the commercial bridge loan is ideal when you are performing a 1031 exchange and only have 45 days to close on your next property. Without the speed in closing that a mortgage bridge loan offers, you jeopardize your standing as being qualified for the 1031 exchange exception. Since the IRS is very unforgiving and not prone to extend the time period of 45 days to close on the next property, it is in your best interest to play it safe and use a bridge loan so that you can close on time with your next real estate investment.


Since such bridge loans are designed to serve as short term financing, your commercial lender will be more than willing to help you roll your or a mortgage bridge loan into a more permanent mortgage loan on the property. Obviously short term financing should not be used to finance long term debt so it makes good financial sense to book a mortgage loan on the property when you are able to do so.


With this knowledge hopefully you can become a more potent player in the real estate market by taking advantage of the 1031 exchange to move from good investment properties to great investment properties. More than likely your commercial lender will be more than happy to help you out in this process, ensuring that you are able to secure a or a commercial bridge loan to assist you in closing on the first property and purchasing the next piece of real estate as quickly as possible.


Adam Smith is an informational author for 10X Marketing. For more information on acquiring a commercial loan or a commercial mortgage for your investment property please visit SNCLoans.com



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