Property Tax 101: 1031 Exchange Property Tax
The advantages of 1031 exchange being offered by the IRS is usually forgotten by the real estate businessmen because they are too caught up by the buying and selling process. The primary focus of this article is to provide you with the basic information that would help you in achieving the benefits and all that the 1031 exchange property can offer for your advantage.
Usually, the concerned authorities who buy and sell real estate use their profit in various means or they sometimes even save them for purposes other than they need now. What they do not know is that they can actually use their profit to buy another real estate but this time, with the use of the 1031 exchange so as to avoid the other sales that the IRS can tax.
Tax deferred exchange is another names used for the 1031 exchange. Investors from the real estate business who have been working there for a long time usually know about this exchange and use it for their own strategy. In simple terms, you would have to sell a qualified property, and with the money you will be getting from that transaction, you will be buying or using it to exchange for another property within the agreed upon time. The properties are not being sold or bought, look at it like a form of an exchange.
There are some who are sceptical about the process because they think that it is unlawful or even illegal to practice such method. What they do not know is that this method is approved of by the law. Do not worry because the exchange is governed by many rules and regulations that will also protect you if you choose to use the method. The exchange also involves policies regarding the possible violations and who will be held responsible in the case of this situations.
One important reminder in the 1031 exchange is that the properties you will be involving must be similar so as to be considered viable. When you do the actual exchange, the properties must be at the same value to be able to proceed. Two rules are usually employed by the 1031 exchange that you might want to look at first. The following are the rules: First, the value of property upon which you will use the 1031 exchange must either be equal or greater than the one you sold if you intend to exchange, and The other rule is that all the profit you will make from the first deal be entirely used for the replacement procedure.
If ever any of the rules is not followed through, the initiator of the exchange will be held accountable for these violations.
Earlier, there was the mention of having an amount of time when using the 1031 exchange. Identification Period and the Exchange Period are the specific names of these time limits.
The first period is the Identification period wherein the initiator must show the property they wish to make the exchange with. Holidays and weekends are included in the 45 days after the selling of the property period.
You will have 180 days for the exchange period or until the tax return date in the taxable year if it is earlier.