The Essentials of Taxes – Revisited

Things that You Need to Know About 1031 Exchange With 1031 exchange, investors have the ability to swap business assets with another business asset. The assets that are being swapped in normal circumstances will incur tax liability on any capital gains. If you meet the requirements of the section 1031 of the IRS tax code … Continue reading “The Essentials of Taxes – Revisited”

Things that You Need to Know About 1031 Exchange

With 1031 exchange, investors have the ability to swap business assets with another business asset. The assets that are being swapped in normal circumstances will incur tax liability 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. Seeking the advice of a professional that is well experienced to deal with transactions that deal with 1031 exchanges is very important before you start to undertake these transactions.

Knowing a few things before you try 1031 exchange yourself is important. It is imperative to know that 1031 exchange cannot be used for personal purposes. It is advisable to use 1031 exchange for the properties that are held for business and investment purposes. 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.

In the 1031 exchange, there are properties that are exchanged, the properties exchanged need to be like-kind which means the properties that are similar in their scope and use. The 1031 exchanges do not take place simultaneously, this is something that you need to know. 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 types of exchanges are commonly referred to as delayed exchanges and you will need help from an intermediary that is qualified. The intermediary will be responsible for holding the money that you have been paid from the sale of your property, he will also be responsible for buying you the replacement property.

IRS normally give deadlines in the deferment of tax even if they allow you to defer your tax. IRS will set rules like the 45 day rule, in this rule, you are required to have found a replacement property after 45 days of selling your relinquished property. If you fail to do this, you will not be granted the exchange and you will be required to pay the taxes.

Naming of multiple replacement properties is allowed by the IRS, this is beneficial for you since you will be able to have a successful exchange. You are allowed to name the multiple properties as long as you are able to close on one in the set limit time. You will be required to close on your replacement property within 180 days after the sale of your relinquished property or your exchange will not be considered successful.

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