Many real estate investors know that with a 1031 exchange they can have tax benefits. But there are also those who are not aware what this exchange is all about that realtors, attorneys, and investors are talking about. Here we will look at some important things to know about 1031 exchanges.
IN simple terms, a 1031 exchange is like swapping one business or investment assets for another. Normally, if you sell your asset, you would have to pay taxes on any capital gains. But if you meet the requirements of section 1031 of the IRS tax code, then you can deter any immediate capital gains tax. A 1031 exchange is not a tax avoidance scheme as you might think. This is because if you sell your investment and don’t replace it with another like kind property, then you will need to pay taxes on your capital gains.
It is important to seek the guidance of a professional experienced like the Turner Investment Corporation in 1031 exchanges since there are many nuances to it. If you want to know what 1031 exchanges entail, read on before trying to make this exchange for yourself.
One thing you need to note is that 1031 exchanges do not apply for residences but only for property held for business or investment use. There are, however, exceptions to the 1031 rule. Although personal residences don’t qualify, you can exchange personal property such as your interest in a tenancy-in-common or a piece of artwork.
Many investors are confused with the requirements that the exchanged property must be ‘like-kind.’ Like-kind does not mean exactly the same but the properties exchanged must be similar in use and scope.
You don’t have to do the exchange simultaneously. This means that you can sell your property today and have up to six months to buy the replacement property. This is actually a delayed exchange. A qualified intermediary is required for delayed exchanges. This person will hold the sales proceeds from the property that you sold and then he will be the one to purchase the exchanged property for you.
There is strictness of the part of the IRS for 1031 exchanges. You only have 180 days or 6 months to close on your replacement property after you have sold your relinquished property. View here for more info: www.turner1031.com
Boot is referred to the cash that you receive during a 1031 exchange. This amount is taxable as a partial capital gain. Even if you receive boot, your exchange is still valid. Remember that boot is a taxable amount. Boot can take other forms aside from cash. If your debt liability goes down at the end of the 1031 exchange, then this will be treated as income and will be taxed accordingly.
If you are interested in a 1031 exchange, you will find companies today that can help you with looking for replacement investments. Search for them online and find the best replacement investments for your own profit.
If you would like to learn more, please visit: https://www.britannica.com/topic/real-property