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. As an investor you, can be able to defer any capital gains tax if you have been able to meet the requirements of the section 1031 of the IRS tax code. 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.
Before you try 1031 exchange yourself, it is imperative to ensure you know a few things. 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. 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 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. 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 exchanges are also known as delayed exchanges an in order to do them successfully you will need a 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. 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 are allowed to name the multiple properties as long as you are able to close on one in the set limit time. 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.