About Using a 1031 Exchange

If you are in possession of real estate that will will give you gain within the sale, you need to evaluate whether a 1031 exchange meets your needs. There are five different classes of taxes of property: property found in the trade or business of taxpayers, property being held for selling to customers, property used to be a primary residence, property used like a vacation home, and property held for investment.

1031 exchanges connect with both property kept in the trade or business of an taxpayer and property held for investment, plus in certain situations, property held like a vacation home. Bear in mind this stipulations:

• Property held for immediate sale will not be considered as an investment
• Business use serves as a holding property for productive easy use in business or trade
• Property that’s being retired from the prior “productive use” operating may qualify

There are lots of possible benefits of using a 1031 exchange, provided that you are clear around the best way to maximise your advantages. Examples of benefits include:

• Owning multiple buildings rather than one
• Gaining leverage
• Deferring the payment of capital gains taxes
• Relocating completely to another area
• Consolidating or upgrading buildings
• Obtaining rest from property management

The real estate that you sell as well as the property that you buy ought to be held for productive use within a trade or business or even for investment purposes, and in addition they need to get similar. In order to get the tax benefits, the hails from the sale must traverse a qualified intermediary instead of through your own hands- even briefly. If the funds move across your hands at any point, every cash proceeds you will get can be taxed.

There a variety of different kinds of properties that is usually exchanged in doing this. “Like kind” describes properties that happen to be similar in character or nature. Examples of popular like-kind properties may involve commercial properties, condos, raw land, rental homes, duplexes, or apartments. Non like-kind properties are primary residences, notes, partnership interests, stocks and bonds, property to become resold immediately, or developed lots held for that purposes of sale.

You should not try to handle the funds from a 1031 exchange alone. Doing so can eradicate the deferment of the capital gains tax and make you pay taxes, eliminating one of the main reasons that individuals seek out 1031 exchanges to start with.

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