What are the 1031 Exchange Rules?
The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind. The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that you retain will be taxable. The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property. Who should consider a 1031 exchange? If you have real property that will net you a gain upon sale (generally property that has been substantially depreciated for tax purposes and/or has appreciated in fair ma
The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind. The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that you retain will be taxable. The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property. 1031 Timeline Identification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th
The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind. The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. All the cash proceeds from the original sale must be reinvested in the replacement property – any cash proceeds that you retain will be taxable. The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property 1031 Timelines Identification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th
For those interested in a 1031 exchange, also called a 1031 like-kind or deferred exchange, this option may seem like a huge money-saver. Detailed in Section 1031 of the Internal Revenue Code, the 1031 exchange allows United States taxpayers to sell certain property and avoid paying capital gains taxes on the sale right away. In fact, they can be deferred almost indefinitely thanks to this rule. One of the most important 1031 exchange rules is that the taxpayer must acquire another property within a certain time period in order for the disposed-of property to qualify for the deferment of capital gains taxes. If the taxpayer waits too long, he may lose his opportunity to benefit in this manner altogether. As capital gains taxes can be rather hefty, many people stand to benefit significantly by exercising the 1031 exchange option. When considering the possibility and potential benefit of a 1031 exchange, many people look first at the 1031 exchange rules that govern the type of property t
