Things 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. 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. 1031 exchange is normally not for personal use. It is advisable to use 1031 exchange for the properties that are held for business and investment purposes. You can be able to exchange personal property in the 1031 exchange even if the exchange of personal property is prohibited, these are some of the exceptions that exist in the 1031 exchange in regard to personal property.
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. You also need to know that the exchanges do not occur at the same time. This is very beneficial because you can have the ability to sell your property and you will have so much time like 6 months to be able to close on the buying of the like-kind property. You need ot have a qualified intermediary if you undertake these types of transactions, the transactions are also known as delayed transactions and in order for them to be successful, you will need the qualified intermediary. 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.
Although IRS allows you to defer your taxes, they will give you deadlines to be able to do so. 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.
IRS will allow you to be able to name multiple replacement properties so that you can have the ability to complete 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.