Things to know about the 1031 exchange strategy

Nowadays many people are interested in having a more successful business while using 1031 exchange strategy. In order to make a trust exchange it is important to understand how the strategy works and what to avoid if you decide to make a 1031 exchange.

 

The definition of the 1031 exchange strategy

It is also called “like-kind strategy” and it permits investors to hold on to the profit they have made from their-real estate investment without paying taxes. In other words, an investor avoids taxes when he sells his property and buys a like-kind property with the gain obtained after the sale.

How to qualify for a 1031 exchange

There are certain things one must consider before making a 1031 exchange. One of the most important facts is that a property used for your own utilization, for example, a vacation home cannot qualify. The property you sell such as the property you buy must be used in business purposes. Both properties must share the same nature or class. For example, a residential house for rent can be exchange with a vacant land. In addition, it is not possible to exchange your property with one that is in another country.

Important things to take into account

First, you have to know that the size of the property is important. The value of the property you are buying must be equal to the profit you make after you sell the old one. If your profit is bigger and you do not reinvest it, you will have to pay taxes. Another important thing to know is that the debts you undertake when you buy the new property must have equal value with the debts you are sparing with the selling of your property.

You can choose up to three properties

You must identify and clearly write up to three possible replacements and you should include street address, perceptible name or a legal description. The professional intermediary or the seller must sign the notice. Remember that it is not enough to notice only the persons who operate as your agent, like the attorney or the accountant.

You can cancel the property exchange

The cost and the period you can cancel the exchange vary from a facilitator to another. You can do this after the 45th day if you purchased property or after the 180th day. The taxpayer must not have constructive receipts of the gains obtained after the sale.

Choose carefully the people who you work with

It is essential to collaborate with professional intermediaries and experienced advisors when you make a 1031 exchange. A professional team will help you with the paperwork and will help you find a property that is suitable for you and your requirements. Another benefit of dealing with a professional team is that they will hold the income of the sold property, in order to stop you touching the money, fact that could make the process difficult. If you have any questions, do not hesitate to ask and to ask the help of professional teams that will help you.