Basic Concept of 1031 Exchange Properties

Written by admin on May 23rd, 2011

Many owners and investors are only focused on buying and selling real estate that they haven’t really looked at the advantages when it comes to 1031 exchange that IRS offers to people. This article will discuss on the basic things that you need to know and how it is beneficial if you will learn more about 1031 exchange properties.

And most of real estate investors and traders will just use the money they earned for other means or keep it for future use. But they can actually use it to acquire another piece of real estate and 1031 exchange can help them as it is non-taxable compared to other normal sales that are taxable with the IRS.

1031 exchange is also called a tax deferred exchange. Real estate investors who have more knowledge in this area use this as a part of their strategy. It is simply selling a qualified property and you are given a timeframe to use your monetary proceeds to purchase or exchange it for another property.  That is how this transaction is treated as an act of exchange and not the usual buying and selling properties.

Some people may look at it differently and they may think it is against the law or illegal. Truth is, it is not illegal and law is actually well-informed. That is why there are rules and regulations involved in this exchange. There are certain policies when it comes to violation and the person responsible for the exchange will accrue tax liability.

The properties involved in 1031 exchange must be the like-kind to pass the regulation. The properties should be of the same value when you do the exchange. There are two major and simplified rules for 1031 exchange properties. It is stated that 1) the replacement exchange property must be equal or greater than the total net sales price of the property that you sold, which in this case is exchanged, and that 2) all equity received from the sale must be used to acquire the replacement.

Violation of these rules will make the person who initiated the exchange liable to pay tax for acquiring the estate.

And the process of partial exchange can also qualify for partial tax-deferral with the amount or the difference will be taxed as a “non-like-kind” property.

We mentioned earlier that there is a timeframe involved in 10310 exchange properties. These timelines are known as the Identification Period and the Exchange Period.

This Identification Period is a fundamental time where the person who initiator must point out the property he or she wishes to take as an exchange. This timeline will run for 45 days, including weekends and holidays, from the day the property was sold.

With the Exchange Period, it is 180 days after the transfer of the first property, or the tax return due date for the taxable year or whichever is earlier.

These are just a few things you need to know about 1031 exchange properties and you may find other valuable information on the internet.  If you will want to look more into this you may also seek the help of a professional to help you with your real estate needs.




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