Important Knowledge to Help You Understand 1031 Exchanges There are many tax laws that apply to different areas and section 1031 is one of the most popular provisions. Realtors, investors and title companies recognize this law because it accrues them certain benefits. Truth be told, the 1031 exchange is very important in promoting investments within the country. This is because this law allows business people to swap a business asset or investment for another asset. With a 1031 exchange, capital gains are not recognized which means that the exchange is not taxed. To ensure that the exchange is not being misused, the law provides for some rules to follow in the exchange which is why you need the services of a tax professional when doing a 1031 exchange. Below are some tips on important things to remember when making a 1031 exchange. The 1031 provision is used to swap investment assets and thus little or no application for personal use. This means that you cannot swap your home for another. That said, it is possible to exchange personal property as long as certain conditions are met. A a tax expert will be I a better position to help understand the exchanges that are legally possible. The general rule when making any exchange is that the assets must be of a like-kind. While 1031 exchange is only for like-kind, the term has a very broad definition which means that something like a building could be considered like-kind with raw land. You can also do a delayed 1031 exchange. In this type of exchange, a sale of the property is made, but another party holds the cash for the owner. The money received after selling the initial property is used to buy another property. The the transaction is as good as a swap. Delayed exchanges also follow the specific guidelines of the section 1031. One such guideline is that the owner of the asset should not hold any cash after the sale of the asset because doing so could spoil the 1031 treatment. You are also required to choose a property that you wish to acquire. You can also designate as many properties as you wish as long as they meet the criteria set out under law.
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It is also important to know that all 1031 exchanges must be done within six months. Due to this, every swap should be meticulously prepared so that the transactions can be completed within this time frame. If money is left after you acquire your replacement property in delayed exchange, such money is taxed as it is considered a gain. Last but not least, considerations must be made for mortgages and other debts attached to the property. This means that if you exchange a property and your liabilities reduce, the reduction is considered a gain which is taxable.Learning The Secrets About Funds

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