The key to legal and acceptable 1031 exchange activity has the right timing and being clear about each of the requirements at the start. Especially with Congress thinking about the future of 1031 exchanges today, it’s a wise decision to network using a qualified intermediary to discover the next steps in your case. Being deliberate and measured inside your approach is very important to complying with all the requirements and gaining the many possible benefits associated with moving forward with 1031 exchange.
One of the very most common queries about 1031 exchanges is because of primary residences or vacation homes. It is very important to be aware that you can convert a primary residence right into a vacation home in a fashion that meets 1031 guidelines, but this property has to be rented and not merely held. The property should be rented for a time and should be rented nearly all any year. If the property is not being utilised for investment or business purposes, technically this doesn’t qualify for a 1031 exchange.
If you’re to move forward by having an exchange and learn later how the property was not the correct fit, selecting responsible for paying of the capital gains taxes. This is why the understanding and selection of the best properties is very important from the outset.
If a 1031 is completed on a primary residence which has been converted to a trip rental, the Safe Harbor rule is necessary. This means the new home should be rented a lot more than 14 days in every one of the two years preceding the date of acquisition. This also signifies that you cannot live there over 14 days of each and every year, or a lot more than 10 percent from the total number of rental days for the property.
Make certain you are clear about these rules and you have engaged a knowledgeable intermediary immediately when you happen to be ready to advance forward using the exchange. The qualified intermediary will be the third party who accepts the funds in the sale in the first property and holds them for you until you can use them to purchase your second property. It might feel like a minor detail, yet it is very important that you use an experienced intermediary to your exchange. It not simply ensures that you’ve followed the laws to the letter, but it really can also be beneficial to have an experienced professional walking you through this process.