Looking On The Bright Side of Resources

Importance Of 1031 Exchange

A 1031 exchange can be described as a legal way in which an investor can sell his or her investment properties and at the same time use the money gained to buy similar investment properties.This is usually done so as to avoid paying the capital gain tax after selling an old property.The 1031 exchange only involves assets that are similar or alike.These may include exchange of businesses, residential and commercial properties, holiday homes and so on.

This also means that the law does not allow the sale of primary residences in exchange for others.The 1031 exchange is also required by law to involve a third party member called the Qualified Intermediary.The job of the qualified intermediary is to retain all the proceedings earned from the sale of the first property till the second property is bought using all the proceedings.The internal revenue authority bans lawyers and real estate agents related to the investor to act as the qualified intermediaries.

There are many guidelines used in the 1031 exchange and one major rule is that the money gained can only be invested in acquiring new properties similar to the old ones.Some of the other terms and conditions include that the property that is being acquired must be of equal or greater value than the one sold earlier.The other rule is that the equity of the property sold must be less or equal to the equity of the new property.

Another term and condition is that the debt from the sold property should either be equal or less than the debt of the newly bought property.For the 1031 exchange to happen, the property to be bought using the money earned has to be identified within a period of forty five days after the first property sale. The new property should also be bought within a time line not exceeding more than one hundred and eighty days after the selling of the other property. These timelines should be strictly followed because exceeding them can make the 1031 exchange to fail.

The 1031 exchange is also legal when a holiday home owner wishes to sell the current one to buy another holiday home.Privately owned residential homes are only allowed in the 1031 exchange if the owner rents it out and can only reside in it for fourteen days in a year.Another thing to note is that any extra money that will remain after a new property has been acquired is fully taxable.

There are numerous investment companies that are involved in the 1031 investment properties. In Coeur d’Alene, Idaho, there is a company called 1031 Gatewaythat specialises in the 1031 exchange investments.

Study: My Understanding of Options

A Quick Rundown of Resources