All You Need to Know About 1031 Exchange
1031 exchanges or like-kind exchanges are an important tax savings tool if your investment property has increased in value. Like-kind refers to the nature of the investment rather than the form. For example a single-family residence can be exchanged for a duplex or raw land or any other combinations will work. Usually, the exchanger has the flexibility to change the strategies for investment so as to get their needs fulfilled. It is worth noting investments such as partnership shares, bonds and stocks cannot be traded. A personal residence is also not allowed to be traded. However, there are ways that you could swap vacation homes but the loophole has since been narrowed down. Make yourself one of the luckiest person who learn about the 1031 tax exchange rules.
You will find the exchanges can be delayed because chances of you getting the exact property that you want to swap with are slim. Therefore, you will find parties delaying whereby there are middlemen that are going to hold the cash for you as you wait to exchange the property. When delaying the exchange, there are some timing rules that must be observed. The designation of the replacement property is the first rule. The cash must be received by an intermediary once the sale of the property occurs but if the other party receives the money, you will spoil the 1031 rule. If you are interested in 1031 exchange , please click for more details.
You must also ensure that within 45 days of selling the property that you designate the property you want to acquire as replacement in writing with the intermediary. You can also designate more than one property as replacement properties. You can do up to 3 properties as long as there is intention to close all of them. The other rule is that you must close the delayed exchanged within 6 months after the sale of property. The party that will receive the cash must pay taxes on it.
You must consider all the debt on the property you relinquish. If there are mortgages and loans, if you do not receive cash but the general liability goes down, it will be treated as income and you will need to pay taxes. Getting started with an exchange is easy; all you need to do is call an exchange facilitator. It is important that you make sure you all the information regarding all the parties before making that call. The facilitator will ask you many questions just to understand the objectives of the clients to help you achieve your investment goals. Seek more info about 1031 exchange https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031.