Information that You Need to Know About 1031 Exchange
1031 exchange is normally used by investors to swap one business asset for another. Normally all the assets that are swapped in the 1031 exchange will attract tax liability in the 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. 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.
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. 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. 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 exchanges are also known as delayed exchanges an in order to do them successfully you will need a qualified intermediary. 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. You will be required to pay the taxes if you don’t meet the 45 day rule that is set by the IRS.
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 can name several properties as long as you close on one of them within the set deadline. IRS will require you to close on your replacement property within 180 days after selling your relinquished property if you want to have a successful exchange.