The Beginners Guide To Options (Chapter 1)

1031 Exchange for Real Estate Investors

Financing and taxes are the main worry of buyers and sellers of real estate. For buyers, negotiating skills can help them obtain favorable financing terms, and for sellers, being aware of like-kind exchange opportunities can help them with tax consequences. The deferral of capital gains taxes is contained in section 1031 of the Internal Revenue Code of the US. With the 1031 exchange real estate sellers can gain much. Basically the 1031 exchange allows property owners to sell their real estate without paying their capital gains taxes in order to buy a replacement property. This does not mean that the taxes are eliminated on capital gains but it is deferred until the property is sold for cash. Tax deferred exchange is another name for the 1031 exchange.

Real estate can diversify one’s income, and appeals to so many investors today.

Having your residence rented can qualify for 1031 exchange. For using it for business, you now cannot use the home primarily as your own residence so it has to be rented to others most of the time. When this happens you qualify for tax benefits in a 1031 exchange.

If you take the 1031 exchange options, this is how it will work.
To be able to sell your property and buy a replacement on needs the help of a qualified intermediary.

Through the 1031 exchange rules, you identify the property you wish to sell, deferring capital gains taxes on the profit from the sale.

You also next need to identify the property that you want to buy to replace the original property you sold. The time limit for identifying the replacement property for a 1031 exchange is very strict and that is why you need to do it fast so you will not miss the tax benefits for this exchange. Taking too long will disqualify you from this tax benefit. The timeline associated with the transaction can be addressed with the help of qualified intermediaries.

Proceeds from the sale of your property goes to the intermediary and this money is used for the purchase of the second or replacement property.

These steps will meet the requirements of a 1031 exchange. For more information you need to consult with a legal or accounting professional.

If a real property is management intensive, the owner can exchange it for quality property with a great income potential, increase tax benefits and appreciation potential. When property is replaced by another the capital gains tax will be deferred through the 1031 exchange. Investors are able to reorganize and improve their real estate portfolio through this exchange process. With the use of the internet platform, people can gather information on real estates and there are websites created to inform people about the 1031 tax deferred exchange, like-kind property exchange and qualified intermediaries.