1031 Exchange: Unzipped

Written by admin on May 24th, 2011

Owners of establishments and other rental properties usually sell their assets to be able to buy a new one or upgrade to a better building.  They want to reinvest it to increase their income.  This is one good way of helping your business to recover if you have been in loss for quite some time.  The 1031 provision of Internal Revenue Service is famous for the advantages it gives to the real estate owners.  Although the process might be a little bit confusing, but you are assured to reap a lot of benefits once you familiarize it.

Several property owners have been ignorant about this exchange code.  This provision allows businessmen to delay the payment of capital benefit tax and hence enjoy the benefits of depreciation.  For a better explanation, the owners get to enjoy the tax exemption on capital benefits when they sell any of their properties.  The only requirement for this process is you have to buy a similar property that has of the same price to the property that you will be selling.

The IRS assumes that such kind of process is not a direct sale and purchase, but closer to an exchange.  Basically, it is an exchange of a property for another.  The taxable income or capital benefit is considered only in a direct sale transaction, and not for an exchange deal.

Read more articles
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Here is an example, if the owner decides to buy an investment property for 0,000 and few years later plans to sell it for 0,000.  The owner is usually held liable for paying the capital benefit taxes for the difference of ,000.  But if he buys another lot worth 0,000 or more, he can be free from paying the capital benefit tax.  This is because IRS considers the deal as a single exchange of properties.

If you are planning to buy a property in any other state in the USA, you need to hire the services of an interlocutor.  This is considered to be the “certified negotiator.”  However, bear in mind that you have to be careful on choosing your interlocutor.  He or she must be knowledgeable about the proceedings of the said transaction, since he will be responsible for all the necessary procedural guidelines of IRS.  When your mediator is not very familiar with it, you might not be able to avail the capital tax exemption.

When the property is sold, the request for buying the property should be presented within 45 days and the purchase formalities should be completed within 180 days.  You should strictly observe the deadlines, since there will be no other considerations whether it falls on a Sunday or national holidays.

The primary requirement of 1031 exchange code is the properties that will be bought and sold should be alike.  If you are selling a property for personal use, you will also have to buy a property that is for personal use.  Such condition goes the same with commercial units.  If you are selling your farm house you are allowed to choose other properties and not just farm house alone.

Prior to engaging in this kind of transaction, it is advisable to ask the help of a legal attorney.  In this manner you will be guided on what are the necessary and unnecessary things to do.  Always remember that you will be involving a huge amount of money in this deal and thus you have to organize everything to inhibit any drawbacks in the long run.

Flynna Sarah – About the Author:

Looking for a nice and high class house? Check out these sites for more real estate properties Homes for Sale in DC Ranch, Homes for Sale in Dobson Ranch and Tucson Real Estate.

Source: http://www.articlesbase.com/real-estate-articles/1031-exchange-unzipped-1013948.html

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