Important Things to Know About 1031 Exchanges
With 1031 exchange, investors have the ability to swap business assets with another business asset. Normally all the assets that are swapped in the 1031 exchange will attract tax liability in the on any capital gains. If you meet the requirements of the section 1031 of the IRS tax code you will have the ability to defer any tax liability as an investor. Before you undertake these transactions, it is important to ensure that you seek advice from a professional that is experienced in these types of transactions.
Knowing a few things before you try 1031 exchange yourself is important. You need to know that 1031 exchange is not for personal use. You should use properties that are held for business or investment properties in the 1031 exchanges. There are however exceptions to these rules, although personal residences don’t qualify, you can have the ability to exchange personal property like a personal piece of art.
The properties that qualify for 1031 exchange are the like-kind properties, these are properties that are used in the same way and are of the same scope. It is important to know that the 1031 exchange transactions do not take place at the same time. The fact that the 1031 transactions don’t take place at the same time, it is beneficial for the investor because he has enough time to buy the like-kind property after they have sold their current property. These exchanges are also known as delayed exchanges an in order to do them successfully you will need a qualified intermediary. The purpose of the intermediary will be to hold the money that you get from selling your current property, he will also be responsible for buying the replacement property for you.
IRS normally give deadlines in the deferment of tax even if they allow you to defer your tax. Some of the rules that are set by the IRS include, the 45 day rules that you will be required to find a replacement property after you have sold your relinquished property. If you do not meet the 45 day requirement,you will not be granted the exchange benefits and you will be required to pay the taxes.
In order for you to complete your exchange successfully, the IRS will allow you to name multiple replacement properties. You can name several properties as long as you close on one of them within the set deadline. After selling your relinquished property, the IRS will require you to close on a replacement property within 180 days or else your exchange will not be considered successful.