Exchanges Tips for The Average Joe
Things that You Need to Know About 1031 Exchange
Investors are able to swap one business asset with another using 1031 exchange. In normal circumstances, the properties that are swapped in 1031 exchange will incur tax liability on any capital gains. You can have the ability to defer any tax liability as an investor if you meet all the requirements of the section 1031 of the IRS tax code. It is important to seek the advice of a professional that is experienced to deal with 1031 exchange transactions before you undertake them.
Before you try 1031 exchange yourself, it is imperative to ensure you know a few things. It is imperative to know that 1031 exchange cannot be used for personal purposes. You should use properties that are held for business or investment properties in the 1031 exchanges. Even if personal residences don’t qualify for personal residences, there are exceptions to the rule or personal use, you can have the ability to exchange personal property like personal piece of art.
The properties that are viable for 1031 exchange need to be like-kind; this means that you can be able to exchange the properties that are similar in use and scope. You also need to know that the exchanges do not occur at the same time. It is beneficial for the investor for the transactions not to take place at the same time because you can be able to sell your property and still have enough time to close on buying the like-kind 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 required to hold the money that you have gotten from the property that you have sold and he will purchase the replacement property for you.
Although IRS allows you to defer your taxes, they will give you deadlines to be able to do so. There are rules like the 45 day rules that will require you to find your replacement property within 45days after the sale of 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.
In order for you to complete your exchange successfully, the IRS will allow you to name multiple replacement properties. As long as you close on a one property within the set limit, you will be allowed to name multiple replacement properties by the IRS. 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.