With 1031 exchange, investors have the ability to swap business assets with another business asset. Normally all the assets that are swapped in the 1031 exchange will attract tax liability in the on any capital gains. If you meet the requirements of the section 1031 of the IRS tax code you will have the ability to defer any tax liability as an investor. Seeking the advice of a professional that is well experienced to deal with transactions that deal with 1031 exchanges is very important before you start to undertake these transactions.
There are things that you need to know before you try 1031 exchange by yourself. 1031 exchange is normally not for personal use. You should use properties that are held for business or investment properties in the 1031 exchanges. Even if personal residences don’t qualify for personal residences, there are exceptions to the rule or personal use, you can have the ability to exchange personal property like personal piece of art.
In the 1031 exchange, there are properties that are exchanged, the properties exchanged need to be like-kind which means the properties that are similar in their scope and use. It is important to know that the 1031 exchange transactions do not take place at the same time. This is very beneficial because you can have the ability to sell your property and you will have so much time like 6 months to be able to close on the buying of the like-kind property. These types of exchanges are commonly referred to as delayed exchanges and you will need help from an intermediary that is qualified. The intermediary will be responsible for holding the money that you have been paid from the sale of your property, he will also be responsible for buying you the replacement property.
Even if you can be able to defer tax, IRS will always give you deadlines in doing so. There are rules like the 45 day rules that will require you to find your replacement property within 45days after the sale of your relinquished property. You will be required to pay the taxes if you don’t meet the 45 day rule that is set by the IRS.
Naming of multiple replacement properties is allowed by the IRS, this is beneficial for you since you will be able to have a successful exchange. You are allowed to name the multiple properties as long as you are able to close on one in the set limit time. IRS will require you to close on your replacement property within 180 days after selling your relinquished property if you want to have a successful exchange.