The Basics of a 1031 Exchanges

If you’re a US taxpayer investing in US real estate, you’ll inevitably come across the idea of the “1031 Exchange.” Someone has already probably told you that you have to do a 1031 exchange to avoid paying taxes. What does this mean? Isn’t that illegal? A 1031 is actually perfectly legal — in fact, it’s named after a line in the US tax code. And while most of the US tax code is more incomprehensible than the Rosetta Stone, the basics of a 1031 are actually not that hard to understand. Here are the basics of a 1031 exchange, including the role of the title company in the process.

What Are Doc Stamps?

Remember the “stamp tax” from grade school history class? It may sound like an antique, but if you transfer real property in the State of Florida, you will soon find out that stamp taxes are still a very real thing.  On the list of closing costs for your transaction, you may see something called “doc stamps.” What are these, and why are you being charged for them?  If you plan to transfer real property in Florida, you should know what doc stamps are and what triggers them, so the expense doesn’t come as a surprise.

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