Know All About 1031 Exchange Property

Written by admin on May 5th, 2011

In a 1031 exchange property agreement between the exchanger and the intermediary there is a document where the exchanger gives the intermediary the right to acquire the relinquished property from the exchanger and then pass it on it to the buyer. The other documents that are required are 1031 exchange escrow agreement, 1031 exchange amendment and assignment to roll over the surrendered property and the 1031 exchange amendment and assignment for the purchase of the identified substitute property. There are four types of 1031 exchange properties and there are the simultaneous exchange, the delayed exchange, the reverse exchange and the improvement exchange. These types have been briefly described below:

1. The Simultaneous exchange – is the 1031 lease where the exchange property and the replacement property are switched over on the same day.

2. The Delayed Exchange – This is also known as the Starker Exchange and takes place after the closing of the exchange property. In this exchange there are strict time frames on that must be adhered to.

3. The Reverse Exchange – is a 1031 exchange where the replacement property is purchased before the exchange property has been sold.

4. The Improvement Exchange – is an exchange where the purchaser arranges for some improvements on a property before receiving it as a replacement property. The legal regulations do not allow for any kind of improvements after exchange that is to be included in a 1031 exchange.

The above exchanges are very popular and they are highly beneficial in the long run too. There are many people who are going in for these 1031 properties exchanges because of the legal benefits that are attached to acquiring them. They are solid and lucrative property deals that serve the utility of both the parties to the contract. It is mandatory that both parties have a consensus on all the terms and conditions that have been laid down in the above.

As mentioned above there are many advantages in the 1031 exchange property and the main one is that the Exchanger gets more buying power because the federal taxes are deferred. He gets easy finance and thus becomes a solid buyer. He also gets the gain of getting more flexibility in the selling price. Investors can also exchange after exchange to create a pyramiding effect. The tax liability is forgiven upon the death of the investor and the heirs are directly eligible to get the inherited property. The exchanger also gets more selling power and he does not have to inflate the selling price to cover the capital gains that would otherwise be due upon the selling of investment property. He gets a replacement property with greater income potential and he also has the right to acquire income producing property as well.

Such an 1031 exchange property can also help an investor acquire a less management intense property. The Exchanger gets the opportunity to consolidate properties to a single managed property or can diversify several small properties into one large property. It also provides him or her an excellent opportunity to relocate or expand any current business or investment that he is operating.

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