Interesting Research on Listings – What No One Ever Told You
1031 Exchanges: What You Didn’t Know 401(k) is just about as far as most people get when it comes to Internal Revenue Code. 401(k) is your retirement simply named after a section of tax code. Section 1031 is finding itself popping up more and more each and every day, into normal conversation. From Real Estate Agents to Investors, from soccer moms to title companies, everyone is talking. We even hear talk of making it into a verb. Most discussion of 1031 occurs in the field of Real Estate, though it isn’t restricted to that field. What is 1031 some people might ask. 1031 Exchange can be called a like-kind exchange or Starker and is a way of swapping one asset for another. Most swaps that take place have limited tax that is due at the time of the exchange, if not none. You can easily change your investment by cashing out your capital gain.
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Cashing out allow the investment to grow, tax deferred. You must follow some rules when property is being exchanged in a 1031 case.
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1031 is not allowed to be used on personal taxes The 1031 provision is intended to be used solely on business property or investments not on personal property. There may be a chance for personal property to qualify Some exchanges of personal property can qualify, such as interested in tenant in common, or TIC’s. Like-Kind is a very broad term This phrase means something different than what you think. Things can be exchanged across the board, with rather liberal rules. An apartment building and a strip mall are great examples of the liberal exchange. A Delayed Exchange is allowed The traditional way of exchanging is one property for another property, between two people. Finding the one exact property out of thousands can be extremely difficult. A replacement will be purchased by a third party with the proceeds from the sale of the first property. A Replacement Property must be designated After the sale of the first property, the funds are send to an intermediary, and then you have 45 days to designate a replacement property to ensure the 1031 continues properly. Designating multiple replacements The IRS will allow the trader to choose up the three properties for replacement as long as one will be chosen. You must close your sales within a 6 month term You only have 6 months, or 180 days to close on the new property after closing on the old property. All cash is taxed The funds that are paid to you from the intermediary, are known as the boot, and are taxable by the IRS. Other debt like mortgages Any cash back to you from the repayment of previous loans will be considered boot by the IRS. If you have any questions about what the IRS will allow and will not allow, the best things is to work with a tax professional who knows the ins and outs of the 1031 process.