Some of the Things That You Need to Know About a 1031 Exchange
In case you are thinking of rearranging your real-estate portfolio, a 1031 exchange would be essential for you as you will be able to avoid the payment of taxes. The tax-deferral tool is very crucial for real estate investors before you actually start there are some things that you need to be aware of. You may be planning to trade up or out farmland this year. You find that this year through a 1031 exchange, a trading farm can be done, and this can help you avoid the payment of tax, among other things.
You need to know that you should not alone whenever you are planning for a 1031 exchange. There is a need to have an intermediary who will help you in facilitating the process smoothly. There are intermediaries who are professional and well qualified, and they will ensure that they are with you through the entire process. Their work is to hold the funds and be sure the transaction actually follows the set rules and guidelines in this case in a professional manner. Make sure that you contact qualified personnel who has been there through the sale or exchange of 1031. If you do not follow this in the right manner, you may end up being in receipt of funds and, in other cases, liable for capital gains taxes.
It is essential to note that for a success 1031 exchange, the applicable properties should have been for commercial purposes or have been used for investment purposes. You cannot use a 1031 exchange for a residential property like, for instance, a home. In many cases, the like-kind features need to be considered in this case; you need to change apples for apples. This does not, however, mean that they need to be of the same type, size of the property. This simply means that the property under the 1031 exchange, should be used for the same purposes. As a real estate investor, the strategy, in this case, should not worry you as you can be able to initiate the process in a careful procedure with the intermediary.
It is, however, vital that you know that if you happen to be a procrastinator, a 1031 exchange will not be suitable for you. There are a number of strict guidelines that need to be followed to the later, and you would not like to avoid them. Most of the instructions do not have exceptions, and you need to liaise with them no matter what. For instance, when it comes to the identification of the property, you will need to strictly get it within 45 days. Again the entire process of the 1031 exchange should be summed up with a period of not more than three months.
It is vital that you also know that times that you would like to defer all the capital gains, it is crucial that you have a property that is equal or has a greater value of the exact relinquished real-estate property. Otherwise, it will be your duty to pay taxes for the difference. There are essential things that you will be highlighted by your intermediary so that you can be ready for the process, be sure that you click here to get started.