Information that You Need to Know About 1031 Exchange

1031 exchange is normally used by investors to swap one business asset for another. The assets that are being swapped in normal circumstances 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. 1031 exchange is normally not for personal use. 1031 exchange is normally advisable to use for the properties that have been held for business purposes or 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.

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. 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.

Even if you can be able to defer tax, IRS will always give you deadlines in doing 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.

In order for you to complete your exchange successfully, the IRS will allow you to name multiple replacement properties. You can name several properties as long as you close on one of them within the set deadline. 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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