Financial Resource

Article by David E. Williams

A sound knowledge of 1031 exchange rules is extremely useful and important to real estate investing entrepreneurs. If the rules are studied and implemented in the right way it will save you lots of money in taxes! By simply doing some research you will increase profit and avoid problems associated with 1031 tax exchanges.

The 1031 tax exchange rules need to be followed closely. Deadlines are very important. You are required to buy new real estate by 180 days prior to registration of the sale and prior to the next filing deadline. Another catch is that there is a 45 day identification time period for you to decide which of three methods you want to use to mark properties you are interested in for exchange.

To maximize your tax deferrals, all of the cash from the sale of the property must be reinvested into the new property. The 1031 tax exchange rules state that you cannot use proceeds from the sale to pay for expenses that are not part of the exchange. To get the maximum tax benefit from these expenses you should handle them on a separate part of the settlement and footnote them and write a separate check to the buyer.

If you happen to reside in a different state from where the property is, be aware that some states mandate that your closing agent or real estate agent is legally obliged to hold back a percentage of your sale price in order to ensure that the state gets any tax revenues that it is due, given that hunting down such non-residents at a later date becomes increasingly difficult.

The real property tax act of 1980 requires that foreigners withhold ten percent of the sales price for this reason. Some states will waive this requirement that it why it is very important to know your state’s stand on this issue.

Trust only an experienced and qualified intermediary when it comes to handling the filing and the paperwork, as everything must be done in accordance with 1031 tax exchange rules. You can easily get 1031 exchange information online and locate the nearest competent intermediaries.

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