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What You Need to Know Before a 1031 Exchange

Every U.S citizen is subject to many tax laws, and section 1031 is one of the most popular provisions among investors. This tax law is mentioned widely by realtors, investors and title companies like it is very important. Well, the truth is that it is very important in promoting investments in the United States. With this provision, a business person can swap a business investment or asset for another asset. The the benefit of this law is that you can swap the asset without having to pay immediate tax since capital gains are not recognized. Doing this allows your investment to grow, but you have to remember that there are special rules that apply. Below are some tips on important things to remember when making a 1031 exchange.

The 1031 provision is used to swap investment assets and thus little or no application for personal use. As such, it is not possible to swap your home., That said, it is possible to exchange personal property as long as certain conditions are met. You should, therefore, consult with a tax expert to help you with the exchange. The the general rule is that the assets being swapped must be of like-kind. While 1031 exchange is only for like-kind, the term has a very broad definition which means that something like a building could be considered like-kind with raw land.

There is also a possibility of doing a delayed 1031 exchange. In this exchange, an individual will sell their asset but use a middle man to hold the cash received for the sale. The proceeds from the sale are used to purchase another property that the owner of the previous property is interested in. Such a transaction is treated as a swap. It is important to follow the guidelines of the 1031 exchange when making a delayed exchange. One important rule is that the owner of the asset cannot hold the cash received after the sale of the asset since doing so will spoil the 1031 treatment. You must then designate a property that you would like to acquire. You can also designate as many properties as you wish as long as they meet the criteria set out under law.
Doing Money The Right Way

All the 1031 exchange must be completed within a period of six months. Due to this, every swap should be meticulously prepared so that the transactions can be completed within this time frame. Also remember that in the case of a delayed exchange, any cash that remains after the replacement property is bought must be taxed. Last but not least, considerations must be made for mortgages and other debts attached to the property. So when you get property with lesser obligations, the reduction in obligations is treated as a gain which is taxable.Case Study: My Experience With Money