The Beginner’s Guide to Finances

Things that You Need to Know About 1031 Exchange

1031 exchange is normally used by investors to swap one business asset for another. The assets that are being swapped in normal circumstances will incur tax liability 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. It is important to seek the advice of a professional that is experienced to deal with 1031 exchange transactions before you undertake them.

There are things that you need to know before you try 1031 exchange by yourself. It is imperative to know that 1031 exchange cannot be used for personal purposes. You should use properties that are held for business or investment properties in the 1031 exchanges. You can be able to exchange personal property in the 1031 exchange even if the exchange of personal property is prohibited, these are some of the exceptions that exist in the 1031 exchange in regard to personal property.

The properties that qualify for 1031 exchange are the like-kind properties, these are properties that are used in the same way and are of the same scope. You also need to know that the exchanges do not occur 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. You need ot have a qualified intermediary if you undertake these types of transactions, the transactions are also known as delayed transactions and in order for them to be successful, you will need the qualified intermediary. 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. IRS will set rules like the 45 day rule, in this rule, you are required to have found a replacement property after 45 days of selling 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.

IRS will allow you to be able to name multiple replacement properties so that you can have the ability to complete a successful exchange. You can name several properties as long as you close on one of them within the set deadline. 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.

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