Finance
A Minnesota investor uses a 1031 tax-deferred exchange to sell a rental property and purchase another. The primary benefit is:
AComplete exemption from capital gains taxes forever
BDeferral of capital gains taxes until a future taxable sale✓ Correct
CReduced mortgage rates on the replacement property
DExemption from Minnesota state income taxes on the gain
Explanation
A 1031 (like-kind) exchange allows investors to defer federal capital gains taxes when selling investment property and reinvesting proceeds in qualifying replacement property. The gain is deferred, not eliminated. Minnesota also recognizes 1031 exchanges for state income tax purposes. Many Minnesota real estate investors use 1031 exchanges to build wealth by continuously upgrading their portfolios.
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